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).
Interesting headline and catchy, but we know stocks for the long-run can work for long investing periods. Otherwise, nobody would take on this form of investing risk for any reward…
That said, Swedroe does raise a few interesting factoids from his reference in the article about stocks in the long-run:
“Over the 150 years from 1792 to 1941, the performance of stocks and bonds produced about the same wealth accumulation by 1942.”
AND
“Results for the entire 227 years were weakly supportive of Stocks for the Long Run: The odds that stocks outperformed bonds increased as the holding period lengthened from one to 50 years. However, the odds never got much higher than two in three and increased only slowly as the holding period stretched from five years (62%) to 50 years (68%).”
The problem I have with such information, while interesting, is our modern economy is fundamentally different than 1942, let alone 1842, or 1792. I simply don’t see the value or point in referencing any stock market data that goes back 200+ years for the modern retail investor.
But I do agree with Larry in that stocks may not always beat bonds, at least over short or modest investing periods. I have participated in a bit of a “lost decade” in my own DIY investing past.
It could happen again.
Looking back at a broad measure of the U.S. stock market, such as the S&P 500 index, over the past 20 years, you would see (or experience as an investor) very different results from the first decade (2000-2009) and the second (2010–2019).
In fact, for large-cap U.S. stocks in particular, this “lost decade” from January 2000 through December 2009 resulted in very disappointing returns: an index that had historically averaged more than 10% annualized returns before 2000, instead delivered less-than-average returns from the start of the decade to the end. Annualized returns for the S&P 500 (CAD) during the market period were -3.18%.
Of course, we only know the results of stocks in hindsight after bad market periods are over and preferably for me, a few generations back makes sense to measure some relative stock market history vs. going back to horses and buggies in the form of a few hundred years…
What do I think? Is 100% equities investing at your peril?
No.
I remain invested in mostly equities at the time of this post with conviction although I do keep cash (or more recently cash equivalents on hand) and always have to some degree. Continue Reading…
Understanding the impact of financial education on wealth-building, we’ve gathered insights from Directors, Founders, and CEOs, among others, to share their experiences and lessons. From fostering open family financial talks to the importance of reinvesting profits for startup growth, explore the eleven valuable strategies these experts attribute to achieving financial independence.
Foster Open Family Financial Talks
Invest in Low-Cost Index Funds
Leverage Compound Interest Early
Learn from Real Estate Investment
Implement Simple Numbers Cash Flow Management
Educate to Protect Wealth
Invest Early, Understand Market Trends
Budget with The Total Money Makeover
Navigate with Financial Education
Avoid Emotional Investing
Reinvest Profits for Startup Growth
Foster open Family Financial Talks
I strongly advise families to prioritize open and honest communication about family finances. It is pretty common in most families to not discuss money. I am a firm believer that regular discussions about finances, budgeting, and investments will strengthen your relationship and prioritize a secure financial future.
Financial literacy is crucial, regardless of asset levels. As a CFP®, my role extends beyond managing investments or creating financial plans; I also serve as an educator for families. By providing personalized guidance and educational resources, I help families bridge the gap in financial knowledge and deepen their understanding of their financial situation. This empowers both the parents and children to contribute meaningfully and reduces the likelihood of misunderstandings or financial disagreements. This collaborative approach with your certified financial planner can provide personalized guidance and help couples navigate these important decisions together.
The more you save and the earlier you save, the better. Your future self will thank you!
You also need an emergency fund. You need to expect the unexpected. Have six months of expenses earmarked in a high-yield savings account.
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 first. The results of compound interest are powerful. As your income increases, lifestyle inflation creeps in. Avoid the urge to spend more as you make more. Save more. Invest the difference. Your future self will thank you. — Melissa Pavone, Director of Investments CFP, CDFA, Oppenheimer & Co. Inc.
Invest in low-cost Index Funds
Despite working in Financial Services for over 20 years, I’ve only truly educated myself about Financial Independence within the last few years.
Fortunately, I had been doing most things right all along; saving a decent proportion of my salary each month, using tax-efficient savings vehicles, maximizing my employer’s pension contributions, etc. Where I messed up, to some extent, was in what I was investing my hard-earned savings in.
Being a sucker for actively managed funds, individual stocks, etc., has hampered the growth of my portfolio over the years. I am now invested exclusively in low-cost index-tracking funds, and I wish I had decided to do this years ago.
My eyes were finally opened to the low-cost passive index tracker approach when a friend recommended I read a book called The Little Book of Common Sense Investing by John Bogle (the founder of Vanguard). It’s a great book that totally changed my outlook on investing. — Jonathan Wright, Founder, Aiming For FIRE
Leverage Compound Interest early
I have built wealth and achieved financial independence primarily through financial education. It has provided me with the necessary tools for making informed investment decisions, managing risks effectively, and optimizing tax strategies. Financial education has been an important platform for understanding the dynamics of the market and developing a disciplined approach to saving, investing, and spending.
The most valuable lesson I ever learned was about compound interest. Compound interest can turn modest savings into substantial wealth over time. The key is to start early, save consistently, and reinvest earnings. Even small amounts saved regularly can grow exponentially due to the compounding effect, highlighting the importance of patience and discipline in wealth building.
Another critical lesson is the importance of living below your means and investing the surplus wisely. It’s not just about how much you earn, but how much you save and invest that counts towards building long-term wealth. When you prioritize savings and investments, you create a buffer for unexpected expenses and have the potential to achieve financial independence sooner. — Sherman Standberry, CPA and Managing Partner, My CPA Coach
Learn from Real Estate Investment
When I was growing up, my grandfather gave me an excellent financial education through his example. He was a real estate investor, and thanks to his investments, he was able to retire early while helping my brother and me pay for college. I decided to follow his example and started buying real estate after college.
Now, my portfolio is worth seven figures. The big lesson I learned from my grandfather is that to be truly financially free, you have to find a way to earn money without having to work all the time. And with real estate, that’s possible. — Ryan Chaw, Founder and Real Estate Investor, Newbie Real Estate Investing
Implement Simple Numbers Cash Flow Management
We run a fast-growing small-business law firm and are devoted fans and implementers of Simple Numbers by Greg Crabtree. I frequently give copies of the book to our clients, and they invariably thank me later.
Greg’s advice about how to view your cash flow and responsibly manage it has been foundational to our and our clients’ success. — Matthew Davis, CEO, Davis Business Law
Educate to Protect Wealth
In co-founding Silver Fox Secure, I’ve directly observed the impact that financial education has on protecting and building wealth, especially among vulnerable populations. A key lesson that stands at the core of our mission is the critical role of preemptive measures in safeguarding one’s financial health. Through our work, we’ve implemented comprehensive identity-theft protection and credit-monitoring solutions that not only serve as a defense mechanism but also educate our clients on the importance of regular financial oversight.
One pivotal example from our experience was helping a group of seniors who were targeted in a sophisticated phishing scam. By providing them with personalized education on recognizing such threats and monitoring their financial activities through our services, we turned a potentially devastating situation into a valuable learning opportunity. This incident underscored the importance of proactive financial education, showing that knowledge is as vital as the technical solutions we offer in preventing financial exploitation.
Furthermore, our efforts have highlighted the necessity of tailored financial strategies to address specific risks associated with different demographics, such as active military personnel and individuals with mental or physical disadvantages. By focusing on the unique vulnerabilities of these groups, we’ve developed targeted educational materials and monitoring strategies. This approach has not only protected our clients’ financial assets but has also empowered them with the knowledge to make informed decisions about their financial security in the future. Through these experiences, I’ve learned that combining cutting-edge technological solutions with personalized education fosters a robust environment of financial independence and security. == Jenna Trigg, Co-Founder, Silver Fox Secure
Invest Early, Understand Market Trends
Financial education has been at the core of my journey in founding BlueSky Wealth Advisors and helping others achieve financial independence. A crucial lesson I’ve learned, and often share, is the importance of early investment and the power of understanding the market’s long-term trends. For instance, an initial $1 investment in the stock market in 1926 could have grown to over $13,000 today, despite numerous economic downturns along the way. This emphasizes not just the value of patience and perseverance in investing, but also the vital role of financial knowledge in distinguishing between short-term noise and long-term growth opportunities.
In the realm of education investment, I’ve observed the significant impact financial education has on making informed decisions regarding one’s or one’s child’s educational future. The story of my client’s son, Sammy, who pursued a $200,000 education in a competitive field only to start with a $30,000 salary, underlines the importance of weighing the value of a degree against its cost and potential debt burden. It’s not just about getting any education but making educated financial decisions regarding that education. This example highlights the necessity to have a financial plan that incorporates smart strategies towards education funding to avoid jeopardizing one’s financial independence. Continue Reading…
Prime Minister Justin Trudeau’s 8th federal budget features $52.9 billion in new spending over five years, according to the CBC.
You can find the 430-page budget — titled Fairness for Every Generation — at the Department of Finance website here.
Released at 4 pm Tuesday, the wealthiest 0.13% of Canadians will be hit with a higher capital gains inclusion rate: as of June 25, the inclusion rate will rise to 66% for capital gains in excess of $250,000 a year, and this will also apply to corporations.
You can find details at the Globe & Mail’s coverage here. (may only be viewable by subscribers.) For those who can’t access, it says:
“The budget doesn’t make any changes to income tax rates, nor does it include an explicit wealth tax. Instead, the tax hikes are focused on capital gains … as of June 25, the inclusion rate on capital gains realized annually above $250,000 by individuals – and on all capital gains realized by corporations and trusts – will rise from one-half to two-thirds.”
The lifetime capital-gains exemption for Canadians will rise from $1-million to $1.25-million, the Globe says, and “The total capital-gains exemption from the sale of a principal residence will not change.” Speaking on CBC, G&M columnist Andrew Coyne called it an “underwhelming” document.
Coyne’s G&M column on the budget bore the scathing headline A government with no priorities, no anchors, and when it comes to growth, no clue. Subscribers can read it here.
A typical passage from his piece:
“…. there is not a single measure in the budget aimed at boosting investment generally – as opposed to the usual slew of measures aimed at diverting investment
into the government’s favoured sectors: artificial intelligence, ‘clean’ technologies, and so on.”
Jamie Golombek’s take on Taxes
Here is what CIBC Wealth’s tax guru, Jamie Golombek, had to say in the Financial Post.
The federal budget released on Tuesday did not contain a general tax rate increase for the wealthy, but the government did announce that the capital gains inclusion rate will be going up and it amended the draft alternative minimum tax rules in response to concerns of the charitable sector .
On the rise in the capital gains inclusion rate, Golombek says “the $250,000 threshold will apply to capital gains realized by an individual, net of any capital losses either in the current year or carried forward from prior years .. Capital losses carried forward from prior years will continue to be deductible against taxable capital gains in the current year by adjusting their value to reflect the inclusion rate of the capital gains being offset. This effectively means that a capital loss realized at the current 50 per cent allowable rate will be fully available to offset an equivalent capital gain realized after the rate change.”
MoneySense’s Jason Heath
Fee-only financial planner Jason Heath penned this insightful analysis for MoneySense. He covers everything from the higher capital gains inclusion rate to impact on entrepreneurs, housing, renters and much more.
Rob Carrick’s Personal Finance report card
G&M personal finance columnist Rob Carrick created a personal finance Budget report card here. He gave Taxes a C-minus grade, Housing a B, Junk Fees a C and Open Banking a D, and Saving for postsecondary education an A.
On the other side, the Finance department says an Improving economy means higher tax revenue: $20 billion in new revenue in five years. The $40 billion deficit is projected to stay more or less pat till 2025/2026, after which it starts to inch down.
$46 billion next year on payments on the Debt
Here’s initial coverage of the budget from National Post. There, it reports that Ottawa will spend $480 billion next year, including $46 billion in payments on the national debt. Among the highlights mentioned:
“Among the new spending is more money for home building, including tax measures that allow first time buyers to take more money out of their RRSP for a down payment and to delay when they start repaying the money.There is also $1.1 billion for interest-free student loans and grants, more funding for the Liberal daycare program and for the first phases of national pharmacare that will cover insulin and contraceptives. There is also funding for a new disability benefit and money for artificial intelligence research.”
Mix of Bad Economics and Bad Politics
Also in the National Post, Philip Cross dubbed the budget “a continuation of the Trudeau government’s orgy of spending financed by debt and higher taxes.”
Sample passage:
“Besides being bad economics, the government’s massive spending is bad politics because it antagonizes most provinces without any obvious electoral return from its spending.” Continue Reading…
Time is on my side, yes it is Time is on my side, yes it is
Now you always say That you want to be free But you’ll come running back (said you would baby) You’ll come running back (I said so many times before) You’ll come running back to me
— The Rolling Stones
The Rolling Stones’ iconic hit, “Time Is On My Side,” is a testament to the power of patience. Its lyrics remind listeners that even though things can seem challenging, eventually everything will fall into place. Although this message may be conceptually appealing, it is increasingly ringing hollow with many investors.
Discipline is one of the most important principles of successful, long-term investing. Successful investors tend to stick to their knitting, even during times when this entails avoiding “hot” stocks and underperforming over the short or medium term.
However, even the most disciplined investors have their limits, which have been sorely tested over the past decade, courtesy of the blistering appreciation of mega-cap growth stocks. Such companies are largely represented by the aptly named Magnificent 7 (MAG7), which includes Apple, Microsoft, NVIDIA, Meta, Alphabet, and Tesla. The “pain trade” of prolonged, MAG7-related underperformance has been pervasive across investment styles, countries, and active management in general.
Value managers have been caught in the wrong place (or style) at the wrong time, to say the least. As the table below demonstrates, growth stocks have left their value counterparts in the dust over the decade ending in 2023.
S&P 500 Growth Index vs. S&P 500 Value Index: 2013-2023
This incredible dispersion has caused investment styles to dominate investment acumen to the point where even some of the best value managers have underperformed some of the worst growth managers. Alternately stated, there has been little, if anything that a value-based investor could have done to avoid getting outrun by the growth trade juggernaut that has dominated markets over the past 10 years.
The effect of the tremendous run of MAG7 companies has also had a profound effect on the relative performance of different countries and regions.
Comparative Returns: 2013-2023 (in USD)
To put it mildly, the S&P 500 Index, which its heavy exposure to MAG7 companies has turbocharged, has left non-U.S. indexes in the dust. The bottom line is that if you were underweight U.S. stocks, you were doomed to underperform.
Lastly, the MAG7 juggernaut has cast a dark shadow over active management (more on this later). According to Morningstar, during the decade ending in 2023, 90.2% of U.S. large cap managers underperformed their benchmarks. When it comes to active equity strategies, most clients’ experiences have been less than inspiring, if not disappointing.
From Big is Bad to Big is Beautiful
The dramatic outperformance of mega-cap companies over the past 10 years stands in sharp contrast to their longer-term historical pattern. Over the past several decades, underweighting the very largest stocks has been a winning bet. Since 1957, the 10 largest stocks in the S&P 500 have underperformed an equal-weighted portfolio of the other 490 stocks by an average of 2.4% per year. Continue Reading…
Canadians in or nearing retirement may be seeking out an investment that provides stability in the face of broader market and economic challenges. Balanced mutual fund portfolios have remained the most popular form of investment fund among Canadians.
However, most current balanced mutual funds and ETFs in the Canadian market provide income at levels below inflation rates. Moreover, these balanced funds/ETFs often pay quarterly, semi-annual, and annual distributions as opposed to monthly.
Today, we zero in on a balanced ETF designed to offer stability, growth opportunities, and high monthly cash distributions.
Today — April 15, 2024 — Harvest ETFs launches the Harvest Balanced Income & Growth ETF (HBIG:TSX). This exchange-traded fund (ETF) is designed to provide Canadian investors of all ages — and especially those in retirement — with access to a balanced portfolio consisting of primarily Harvest Equity Income ETFs and Harvest Fixed Income ETFs that deliver high monthly cash distributions.
For those looking for more cash flows to help bridge the income gap, or who want to meet RRIF withdrawal minimums, we have also launched the Harvest Balanced Income & Growth Enhanced ETF (HBIE:TSX), an alternative fund that uses leverage. This ETF seeks to provide unitholders with high monthly cash distributions and the opportunity for capital appreciation by investing, on a levered basis, in a portfolio that seeks to replicate HBIG. With the use of the leverage, the risk rating for HBIE is slightly elevated relative to HBIG.
What is a balanced portfolio? How is Harvest changing the original formula to meet investor needs in 2024? Let’s jump in.
What makes up the traditional 60/40 portfolio?
According to the Investment Funds Institute of Canada (IFIC), the number of mutual fund assets in Canada totalled $2.012 trillion at the end of February 2024. That was up 2.9%, or $57.1 billion, from January. Meanwhile, ETF assets totalled $403 billion at the end of the same period – up 4.1% month over month.
Balanced mutual funds make up $923 billion, nearly half of the total mutual funds operational in Canada. That means that Balanced portfolios are the most popular among Canadians who are invested in mutual funds. ETFs, by comparison, are heavily weighted in Equity and Bond funds, while Balanced ETFs only make up $16.5 billion out of $403 billion.
A balanced fund typically refers to a portfolio that is broken down by 60% equity and 40% fixed-income exposure. That ratio allows for capital appreciation while mitigating risk and providing protection from volatility with the exposure to bonds. While the 60/40 ratio is a proxy for the typical balanced portfolio, it is not one-size-fits-all. Some balanced portfolios may aim for ratios that weigh either equities or bonds more heavily.
How do covered calls generate high income?
Harvest ETFs believes wealth is created and preserved by owning leading businesses and high-quality fixed income securities. Moreover, Harvest is a market leader in covered call options ETFs. Harvest has been writing covered call options for 15 years. Moreover, the firm has a strong track record for delivering consistent distributions. Continue Reading…
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