Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

A Self-Checkup on your Financial Health to help your Mental Wellbeing

Image courtesy FPCanada


By Sahar Abdul Zahir, BlueShore Financial

Special to Financial Independence Hub

Many people view money as simply numbers that get you from point A to point B, and may not make a connection between how finances can also impact mental and physical health. However, FP Canada’s 2022 Financial Stress Index survey found that 38% of Canadians believe finances are their biggest source of stress, ahead of both health and relationship issues. More alarmingly, FP Canada’s study also found that 43% of respondents had lost sleep over financial anxiety.

There are a variety of reasons why many of us do not seek professional advice for our financial problems, ranging from not thinking we need the help, to being embarrassed, or not knowing where to go. Regardless of the reason, there is a clear link between finances, anxiety, stress, and mental health, and avoidance of the problem is not the answer. The good news is, there are many steps you can take today to help get yourself back on track.

Understand your relationship with money

Many people still believe that talking about money is taboo, or feel embarrassed to discuss financial troubles, even with a professional. Financial literacy should begin at an early age and continue as a lifelong learning process. Having an open dialogue around finances and money management as a family can be a good thing as your experience with money, or lack thereof, in your childhood can impact your attitude and emotions towards money later in life. Make note of impulse buying behaviour and what may trigger it: perhaps a hard day at work, or an argument with your partner. Understanding these spending patterns will allow you to find better ways to manage these stresses and adjust accordingly.

Financial health checkups

Just like doing a regular physical health checkup, having periodic financial wellness checkups is important for detecting any areas that you should focus on. This can be done by completing a thorough audit of finances, budgets, and plans with an advisor. An annual checkup can help you better prepare for the future and minimize the impact of any surprise events. Also utilizing online advice tools such as BlueShore’s Financial Wellness Checkup tool can help get you started, by providing an assessment of how you are doing, and advice on where you need to improve along your path to financial wellness.

Small cuts for long-term impact

We have all heard the latte-a-day and avocado toast analogy. While these items can seem like small expenses that are not likely to make a big impact on our overall financial health, they are really representative of our spending habits. Cutting out your morning coffee is not going to make you wealthy, but you may have some ongoing small expenditures that quickly add up and could affect your long-term financial goals. Continue Reading…

The superiority of Canadian “Robo Advisors” over mutual funds

By Dale Roberts, cutthecrapinvesting

Special to Financial Independence Hub

This is a battle between lower-fee Canadian Robo Advisor portfolios vs high-fee Canadian mutual funds. As you are likely aware, Canadians pay some of the highest investment fees in the world. Larry Bates, the author of Beat The Bank, calls those fees wealth destroyers. Lowering fees is one of the most predictable ways to increase your investment returns. More money stays in the right pocket; your pocket. By way of the Questwealth Portfolios (from Questrade) let’s have a look at the superiority of Robo Advisors over Canadian mutual funds.

Here’s the review of Larry’s Beat The Bank. That is a must read. On Larry’s site you will also find a tool that will calculate the cost of high investment fees.

The Questwealth Portfolios

There are three simple ways that Canadians can leave behind their advisor and high fee mutual funds. If you want investment advice and managed global ETF portfolios, you can look to one of the Canadian Robo Advisors.

Here is a post on what is a Robo Advisor? As you’re about to discover, this is a far superior approach to a typical high-fee mutual fund. Also consider that most high-fee mutual funds in Canada are offered by salespersons and not ‘real’ advisors.

Questwealth is one of the Canadian Robo Advisors. And don’t be fooled by that Robo word. While you can choose to do everything online from start to finish, real humans are available for investment advice and guidance. And at a shop such as Justwealth you’ll have a dedicated advisor, with financial planning available.

You can have it all in a low-fee environment.

Not investing with Mom and Dad’s guy

Questwealth offers the Questwealth Portfolios. They are the lowest fee Robo offering in Canada. And they are famous for their advertising. Many younger Canadians are not following their Mom and Dad, running into the bank, Investor’s Group or AGF (or other mutual fund sales shop) to fill the pockets of advisors and mutual fund creators. Nope, they are learning how to self-direct and how to take control of their own wealth building destiny.

In one commercial the younger brother turns to his embarrassed older bro and offers …

You’re not still investing with Mom and Dad’s guy, are you?

It’s nice to see many Canadians become their own advisor. Keep that 2% or more in your own pocket. You’ll need bigger pockets, by the way.

Questwealth Portfolios vs Canadian mutual funds

Questrade suggests (based on the simple fee math) that over time Canadians could retire 30% wealthier. That said, it’s a much greater benefit than that 30% suggestion. Based on the return differential to date, you’d be looking at returns that are 50% better (or more) over a 30-year period. Retiring with 50% more is obviously life changing.

And of course, a 5-year performance is a shorter period, but it aligns with the known underperformance of high-fee actively-managed Canadian mutual funds.

Also, past performance does not guarantee future returns.

You’ll find a calculator on their site.

Here’s the Questwealth Portfolios vs typical or average mutual funds in Canada, to the end of February 2023. The mutual fund returns are based on Questrade calculations, looking at the available data for the mutual fund space. That list and returns for the individual mutual funds was also provided to me.

And here’s Questwealth vs the RBC Select balanced mutual funds.

And here is a post that looks at Justwealth vs Canadian bank mutual funds.

The outperformance is outrageous.

Ditch your high-fee mutual funds

It appears to be a no-brainer: ditch your high-fee Canadian mutual funds. If you decide that a Robo option such as the Questwealth Portfolios is right for you, you’ll find it is an easy process to make the move. They can help you with the transfer process.

Here’s the link to Questrade.

But please pay attention to any tax consequences should you have any taxable accounts. You might consider Justwealth if you need to transfer considerable taxable amounts. They can accept your taxable account mutual funds and will drawdown the assets over time in a tax-efficient manner.

Create your own ETF Portfolio

If you want to leave your mutual funds behind, you can also create your own ETF portfolio. Here’s the performance of the core ETF portfolios.

Continue Reading…

Learn to spot the investment Rules of Thumb that maximize portfolio returns

Some investment rules of thumb will help your portfolio, while others will cost you money. Here’s how to tell the difference.

You can find numerous investment rules of thumb that aim to tell you when to buy or sell. Most are based on chart-reading or technical analysis. All these work at times, but none work consistently. When they fail, the profits you miss out on are likely to overwhelm any risk they help you avoid.

Meanwhile, one of the top investment rules of thumb — that does work — is that you can cut way down on times when you really need to sell by consistently buying well-established, high-quality stocks.

These stocks can still drop sharply when the economy falters or bad news strikes, of course. But these are the stocks that snap back quickest and most reliably when the trend reverses and bad news comes less often. That’s why it generally pays to hold on to stocks like these through market setbacks.

Here are successful investment rules of thumb to help bring profits to your portfolio

  • Avoid buying and selling too often
  • Avoid buying too many low-quality investments
  • Avoid portfolio tinkering, especially when it comes to selling stocks that have gone up too far and too fast
  • Diversify across industry sectors
  • Avoid buying too many stocks in the broker/media limelight
  • Build a balanced portfolio
  • Utilize proven strategies for compound interest
  • Keep fees low with traditional ETF picks
  • Look for hidden assets
  • Look for dividend-paying stocks

One of the best investment rules of thumb is to stay out of new stock issues

Companies sell new issues (also called Initial Public Offerings, or IPOs) to the public when they feel it’s a good time to sell. That may not be, and often isn’t, a good time for you to buy.

In addition, the underwriting brokerage firms try to spark publicity about the new issue, and they pay extra commission (as much as double the regular rates) to spur their salespeople to sell the new issue to their clients. This tends to create a high-water mark in the price of the new issue. Unless the new company can follow up with business success, the price of the new issue may languish for months or years.

Some new stock issues — so-called “hot new issues” — depart from this pattern. They begin moving up as soon as they hit the market. Some even “gap upward” on their first day of trading: that is, their first public trading takes place well above the new issue price.

This possibility attracts buyers who fail to appreciate how rare it is. In addition, the underwriting brokers can generally tell when this is going to happen, by judging the reaction of their biggest clients (who of course get first pick on their new issues), and the media. They reserve most of their allotments of hot new issues to their biggest and best clients. Continue Reading…

ETF Fees: What you need to know before investing

By Sa’ad Rana, Senior Associate – ETF Online Distribution, BMO ETFs

(Sponsor Blog)

Investing in Exchange-Traded Funds (ETFs) can be a smart move for many investors, but it’s crucial to have a clear understanding of the costs and fees associated with these investment vehicles. In this blog post, we will decode the various expenses and provide valuable insights to help you make informed decisions.

Expense Ratio: Unveiling the Components

The expense ratio is a fundamental factor to consider when evaluating ETF costs. It encompasses several elements, including:

  1. Management fees: ETFs charge management fees for the professional management of the fund.
  2. Operating expenses: These expenses cover administrative costs, custody fees, and legal fees.
  3. Trading costs: ETFs incur costs associated with buying and selling the underlying assets that make up the fund.
  4. Taxes: ETFs may also be subject to taxes including, interest, dividend, and capital gains taxes, which are passed on to investors.

The expense ratio is typically expressed as an annual percentage of the total assets under management (AUM) and is deducted from the ETF’s net asset value (NAV). For instance, if an ETF has an expense ratio of 0.50% and an NAV per unit of $100, the annual cost to investors would amount to $0.50/unit.

Exploring Other Cost Considerations

  1. Tracking Error: Although ETFs aim to replicate the performance of an underlying index or asset class, certain factors such as fees, market conditions, market timing, currency, and tracking methodology can lead to a difference between the ETF’s returns and the index it tracks. This disparity is known as tracking error.
  1. Bid-Ask Spread: The bid-ask spread represents the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept for an ETF. Liquidity, market conditions, ETF characteristics, trading volume, and market maker activity influence the bid-ask spread. Narrower spreads are generally observed with higher liquidity and trading volumes, while wider spreads are prevalent with lower volumes and niche markets. Investors should consider bid-ask spreads, as they can affect transaction costs and overall investment returns. To mitigate these costs, investors can use limit orders to specify their desired price and potentially minimize the impact of wider spreads.
  1. Currency Hedging: ETFs provide easy access to assets from different regions worldwide. Investing in non-Canadian assets expose investors to two potential sources of return: the return of the security and the return of the foreign currency relative to the Canadian dollar (CAD). Currency fluctuations can have either a positive or negative impact on your total return. Currency-hedged ETF solutions are available and aim to mitigate the impact of currency fluctuations, allowing investors to participate in global markets as if they were local. It is important to understand however, that there is a cost for currency hedging. At BMO ETFs this cost is minimal as we use forward currency contracts to hedge purposes which are very cost effective.   Continue Reading…

How to avoid a CRA Audit

By Amit Ummat

Special to Financial Independence Hub

Our firm is a tax boutique with all kinds of clients and all kinds of tax issues. They may be corporations, individuals of high net worth, business people, and entrepreneurs running smaller enterprises. They can also be retired professionals.

One of our clients is a retired doctor from Alberta who owns several Canadian properties. He moved from Alberta to Ontario so he could be close to his sister, but he still owns that property in Western Canada. However, the Canada Revenue Agency is not satisfied that his Ontario residence is his primary residence – it is – and demands back taxes.

Unfortunately, the CRA often takes the view that one is guilty until proven innocent, which is why so many people require professionals like lawyers and accountants to help them in their tax dealings with the federal government.

We also have clients with stories that are heart-breaking. And make no mistake, the CRA is anything but a purveyor of mercy when it comes to taxes. It doesn’t matter if you are a multi-millionaire or a single mother with kids whom they deem to be in tax arrears.

Regardless who you are and your particular situation, one thing everyone has in common is that no one wants to be audited. According to the CRA’s Annual Report to Parliament, in fiscal year 2020-2021 the agency conducted 245,000 audits of individual tax returns and another 41,000 audits of small- and medium-sized businesses. Generally speaking, the CRA can only audit someone up to four years after a tax return has been filed. However, in some cases — such as in suspected fraud or misrepresentation — the CRA can go farther back and, in fact, there is no time limit for such a re-assessment.

Of course, many of our clients are self-employed, but as mentioned we also represent professionals and businesses who are required to keep their own books, as well as clients who operate other cash-based businesses. It just so happens that these groups are usually audited more often than others. So, if you belong to a group that is already under some scrutiny, it’s important to audit-proof your business.

How do you do that?

Indeed, one of the most common questions we get asked is “How do we avoid audits by the CRA in the future?” Well, there is no simple way. It’s not like taking a pill. But I have compiled a list of ten tips that should help you to remain audit-proof. Let’s have a look at them:

  1. Check and double-check your return after you complete it. This is especially true if you do the return yourself. Keep in mind where this return goes. It goes to the Canada Revenue Agency. If they discover a mistake – even if it’s an honest mistake on your part – they may conclude it was done for a reason. I have many examples of well-documented transactions being rejected due to the taxpayer’s failure to file a routine election. This is why it’s better to avoid mistakes as much as possible.
  1. Keep detailed records. I cannot stress this enough. The fact is some expenses and deductions are audited more than others. I had a client recently who was reassessed vehicle benefits because he didn’t have a log book. It was a huge headache, but we got him his relief. Ensure that you keep meticulous records of all these expenses.
  1. Make a point of filing correctly the first time. Amended returns can and often do draw scrutiny to your filing position. I have seen people forget to report a sizeable deduction. Once it was reported on an amended T2, the CRA conducted a full-scale audit. And this is a large public corporation.
  1. Properly document any unusual changes to your filing position. What exactly does that mean? If you are suddenly earning double the income from one year to the next, or you are claiming an unusual capital expense, do not be afraid to explain it in your return.
  1. Try not to claim unrealistic deductions. Home office expenses, especially these days in the post-Covid world, are often claimed. But if you are claiming half of all your home expenses, you may be audited. Likewise, if you ascribe 100% business use to a vehicle, you may be audited for that.
  1. As much as possible, try to fly under the radar. In other words, do not make it easy for the CRA to single you out as a person or business that should be audited. Examples of not doing this could be things like excessive charitable donations, very low income while living in a mansion, or participating in tax shelters. All of these will raise red flags that may result in an audit.
  1. File on time. This is pretty basic, but you would be surprised how many people and businesses file late. There really is no excuse not to comply. Late returns are never a good idea and opening the door to a potential audit is only one of the reasons to avoid doing this. It is always better to file on time. Continue Reading…