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).

63% neglected Retirement saving during Covid; study sees urgent need for Workplace pensions

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Over the course of the Covid pandemic the past year, almost two thirds of Canadians (63%) did not put aside anything for retirement, up from 58% last year, according to a study being released today.

That’s according to the third annual Canadian Retirement Survey from Healthcare of Ontario Pension Plan (HOOPP) and Abacus Data.

Not surprisingly, the survey also found a widespread belief that better access to workplace pensions is needed to avoid a retirement crisis.

The findings, based on an April 2021 survey of 2,500 Canadians, affirm there is a high level of anxiety about ability to save for retirement. Half (48%) said they are “very concerned” about not having enough money in retirement. That was more than the concern for one’s own physical health (44%), mental health (40%), debt load (31%) and job security (26%).  Only the daily cost of living was a greater concern than Retirement.

Steven McCormick, hoopp.com

“After more than a year of COVID-19, Canadians remain steadfast in their personal and societal concerns around retirement security,” said Steven McCormick, SVP, Plan Operations, HOOPP in a press release [pictured on right]. “As day-to-day financial pressures mount for some and ease for others, Canadians across the board are acutely aware of the importance, and challenge, of saving for retirement.”

While 46% of Canadians said they saved more money during COVID than they otherwise would have, more than half (52%) set aside nothing for retirement during the past year. Of those who said they saved less than usual, 72% saved nothing for retirement.

McCormick added: “HOOPP is proud to do its part by providing retirement security to healthcare workers, many of whom fall into groups that often don’t have access to pensions, such as women, part-time workers and younger Canadians. For our membership, the impacts of this pandemic will continue to be felt even after we emerge from the immediate crisis; but they can take some comfort in knowing their pension is secure.”

Covid disproportionately hurt finances of younger low-income groups

The COVID-19 pandemic harmed the finances of half of Canadians (52%) and did so disproportionately amongst younger and lower-income groups. Those aged 44 and younger are twice as likely to have had their finances greatly harmed (24%) than those 60+ (11%). Likewise, those earning less than $50,000 are twice as likely to have had their finances greatly harmed (25%) than those earning $100,000+ (12%). Continue Reading…

What are Cryptocurrency Loans and how do you get one?

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By Hristina Nikolovska

Special to the Financial Independence Hub

If you urgently need some extra money, a personal loan is the most viable option. There are various kinds of loans like mortgages, credit cards, or personal loans. Usually, you’d head over to banks or credit unions to get the funds. However, there’s another way to get a personal loan you probably haven’t considered. This article will explain what you need to know about crypto loans.

What are Crypto Loans? 

Cryptocurrency has evolved and entered multiple markets. That’s why you also have the option of getting a cryptocurrency loan, just like you would get one from a bank. However, there are some differences. 

Cryptocurrency is decentralized, meaning you don’t need an intermediary to deal with your financial transactions. The same applies to a crypto loan. There still is a platform you should register on, but you won’t be borrowing funds from it. Instead, you’ll borrow funds from other cryptocurrency owners. You also won’t need any credit checks. 

How do you borrow Crypto?

One thing you should know is that you’re required to over-collateralize a crypto loan to be eligible for it. This proves you have enough financial power to get the loan, and it protects both sides. 

Usually, you’ll collateralize your loan with some other cryptocurrency. Once you pay off your loan, you’ll get your cryptocurrency back. If you’re worried about the high volatility of cryptocurrencies, some platforms allow you to collateralize your loans with cars, real estate, or other off-chain assets. 

The cryptocurrency loan process is quick, and you’ll receive your money almost immediately. The first thing you need to do is verify your identity. Identity verification or know your customer (KYC) is there to protect the platforms and lenders from frauds, money laundering, terrorist financing, and similar acts. 

This identity verification is fast. Typically, you need to take a photo of one of your official documents and send it in for a scan together with your data. After this step, you’re required to deposit collateral. Depositing is as fast as the blockchain. 

Since this form of lending doesn’t require any assessment of your credit score, it’s a great choice if you don’t have any financial history, bank account, or you’re self-employed. It also allows you to switch between crypto assets and make your funds liquid without triggering a taxable event. 

What are the safest Crypto Lending Platforms? 

There are many crypto lending platforms out there that differ in fees, interest rates, withdrawal terms, and other aspects. 

The most famous platform is Binance. Loan duration lasts from 7 to 90 days. Daily interest rates are 0.0244%, while annual interest rates are 8.90%. Binance offers two types of lending, fixed deposits and flexible deposits, where the fixed one locks your funds, and the flexible one lets you withdraw funds whenever you want.  Continue Reading…

Accepting Market Returns

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A few readers have expressed concern about their recent investment performance. In most cases, these investors are holding a sensible, low cost, globally diversified portfolio of index funds ranging from conservative (40% stocks, 60% bonds) to balanced (60% stocks, 40% bonds). One reader said:

“Psychologically, it’s tough to put money in when returns have been so low.”

When you invest in a passive portfolio that tracks broad market indexes you can expect to earn market returns minus a small fee. This is far and away the best and most reliable way to invest for the long term.

But sometimes market returns can be disappointing in the short term. Investors might be experiencing that right now. In fact, if you’ve recently moved away from actively managed funds or stock picking to embrace a portfolio of passive index funds, you might be wondering if that was a wise decision.

Market returns have been dismal this year compared to returns from the previous two years. But context matters. FP Canada’s projection and assumption guidelines suggest future expected returns of approximately 4.78% per year for a global balanced portfolio.

Meanwhile, an actual global balanced portfolio represented by Vanguard’s VBAL and iShares’ XBAL returned about 15% in 2019 and 10.5% in 2020. Even a global conservative (40/60) portfolio returned about 12% in 2019 and 10% in 2020. This is highly unusual.

Investment roads not taken, but no regrets

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By Michael J. Wiener

Special to the Financial Independence Hub

I’ve let some very lucrative opportunities slip through my fingers over the years.  I won’t call them regrets as I’ll explain later, but I could have ended up with a lot more money than I have now.  Here I describe the top three potential paydays that got away from me.

Bitcoin

I spent my career as a cryptographer, so it’s not too surprising that I took an interest in the workings of bitcoin when it first appeared.  I learned how it worked and appreciated the clever way it was designed to mimic mining for gold without the need for a central authority.  For a while, that’s as far as my interest went.

Later, some enthusiasts formed a group to work on mining bitcoins, and they wanted me to join.  I was tempted, but decided that I had other things to do with my time.  Given the way I tend to get obsessed with technical projects, if I had joined in those early days, I could have mined thousands of bitcoins.

When bitcoin prices were manipulated upward to spark the mania we’ve witnessed, I would have sold my bitcoins off a little at a time to avoid having too much of my net worth tied up in a volatile currency of questionable real value.  It’s possible that I could have ended up with around CDN$50 million after taxes.  But I’ll never know for certain what might have been because I didn’t join the group.

Apple Stock

I bought 3000 shares of Apple stock in October 2000.  They were only $20.54 each.  A little less than three years later, I sold them for a loss of about US$3000.  Since then, Apple shares have split 2 for 1, 7 for 1, and recently 4 for 1.  If I had held onto this stock, I’d have 168,000 shares now.  As I write this, these shares trade at $126.85, for a total of US21.3 million. Continue Reading…

Stock Valuations: Are the lunatics running the asylum?

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By Noah Solomon

Special to the Financial Independence Hub

The Buffett indicator is a simple ratio that compares the market capitalization of the U.S. stock market to its GDP. Buffett himself warns that if this ratio reaches 200%, “you are playing with fire.” At its current level of approximately 234%, this indicator is higher than it has ever been, including at the peak of the dot-com bubble in the early 2000s.

The cyclically adjusted price/earnings (CAPE) ratio is a well-known metric invented by economist and Nobel Laureate Robert Shiller. The S&P 500 Index’s CAPE ratio currently stands at 36.6, which is higher than 98% of monthly readings since 1881, and more than double its 140-year average.

To be fair, the current nosebleed levels of the Buffett indicator and the CAPE ratio can be partially explained by today’s record low interest rates. Furthermore, equity markets have become increasingly dominated by technology-driven and/or software-as-a-service (SaaS) companies with above average profitability. This shift may render current valuations less comparable to those of the distant past.

Regardless of the valuation metrics you use or whichever “this time it’s different” adjustments you make, stocks today range anywhere from somewhat expensive to obscenely overvalued.

What Did You Think Was Gonna Happen? Money Makes the Mare Run

Since 2008, financial markets have benefited from an unprecedented period of low-interest rates. When the pandemic began to ravage the globe in early 2020, the Fed cut interest rates to near zero and began pumping hundreds of billions of dollars into financial markets. By purchasing Treasury bonds and government-backed mortgages, the Fed has continued to inject approximately $120 billion into the economy each month.

Leaving interest rates at levels below inflation for an extended period is like putting a giant hose in the ground – water will come up somewhere. In the case of monetary stimulus, the “water” manifests itself in rising asset prices. According to legendary investor Marty Zweig:

“In the stock market, as with horse racing, money makes the mare go. Monetary conditions exert an enormous influence on stock prices. Indeed, the monetary climate – primarily the trend in interest rates and Federal Reserve policy – is the dominant factor in determining the stock market’s major direction.”

In today’s markets, you don’t have to look very hard to find strong evidence of Zweig’s theory, which explains why stock markets were making fresh highs during successive outbreaks of Covid-19 and spiking unemployment. It also explains why approximately two thirds of stock returns over the past decade are attributable to multiple expansion rather than earnings growth.

Those who think that the huge gains in everything from stocks to art to cryptocurrencies to real estate over the past 12 years are solely the result of economic growth and corporate ingenuity should avoid anyone selling GameStop options! The market’s dependence on low rates cannot be overestimated. Interest rates giveth and taketh away. Should the central banks succeed (or over succeed) in getting the inflation genie out of its bottle, equities could be in for a nasty ride.

Stretching A Rubber Band Until It Snaps

Extreme valuations are only one of the features that have historically accompanied asset bubbles and subsequent busts. Another harbinger of future misery has been accelerating gains. Prior to both the tech-wreck of the early 2000s and the global financial crisis of 2008, market returns had shifted from normal to worryingly unsustainable. Accelerating gains can be thought of as a rubber band that is being stretched further and further. The more you stretch the band, the greater the likelihood that it will snap.

As the following chart demonstrates, average equity market returns have been accelerating to the point where they are at their highest levels in five years.

Are the Lunatics Running the Asylum?

Excessive speculation is another common ingredient in the recipe of historical bubbles. Whereas it’s never precisely clear what percentage of market activity is driven by short-term speculators (i.e., gamblers) as opposed to long-term investors, there are some clear signs that the lunatics are at least helping to manage (and possibly running) the asylum.

Short-Dated Call Options: A Canary in the Coal Mine?

If you think information may surface that will cause people to recognize that a company is worth much more than its current value, then you would either purchase its shares or buy long-dated call options. By contrast, short-dated call options represent speculation in its purest form. Buyers of five-day options have no reasonable expectation that meaningful new information will emerge over that period – they are simply gambling. Continue Reading…