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 good resolution for 2021: Choose Financial Independence

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By Michael J. Wiener

Special to the Financial Independence Hub

Many of us dream of financial independence.  Chris Mamula, Brad Barrett, and Jonathan Mendonsa offer many practical ideas for achieving financial independence (FI) and enjoying the journey along the way in their book Choose FI: Your Blueprint to Financial Independence.  They avoid many of the problems we see in the FIRE (Financial Independence Retire Early) book category.

The authors avoid the biggest problem with most FIRE books.  It’s annoying to tell the story of a high-income earner deciding to live like a student his whole life and retire in his 30s, and then say “you can too!”  Although I point out the bad parts of books, I can forgive a lot if my mind is opened to a good idea.  For this reason, I’ve enjoyed FIRE books even if they have some bad parts.  This book manages to avoid the worst parts of other FIRE books.

The authors don’t bother much with retirement.  FI gives us choices so we can “scrap the idea of retirement completely and focus on building lives we don’t want to retire from.”  The life you build can involve paid work, leisure, or any other pursuit you want.

Rather than focus on just one story, the authors draw from the experience of many people who have sought FI.  A common theme is the importance of enjoying the journey.  If you see your pursuit of FI as suffering for several years until you hit your magic number, you’re not doing it the right way.

FI’s benefits start even before you reach the target

You benefit from pursuing FI even before you reach your target.  “If you have a mortgage, a couple car payments, a family to feed, and nothing in the bank, what choice do you have when your boss asks you to do something stupid?”  I was able to push back somewhat with my boss in the late part of my career, and this got me more money and autonomy.

If reaching FI seems like an unattainable goal, it may help to break it down into milestones.  The authors suggest “getting to zero” for those in debt, “fully funded emergency fund,” “hitting six figures” in your portfolio, “half FI,” “getting close,” “FI,” and “FI with cushion.”  This last stage is defined as having a portfolio equal to 33 times your annual spending needs.  This is a sensible target for a young person with a long remaining life who doesn’t really know how spending needs will change with age. Continue Reading…

A smart guide on how to invest in 2021

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By Alex Barrow

Special to the Financial Independence Hub

2020 was a difficult year in markets and the economy. There remains a high level of uncertainty heading into the new year. Below we’re going to walk you through some time-tested practical steps on how to prepare for the coming year, in order to make sure you’re financially set for whatever may unfold. 

1.) Assess your personal balance sheet

When planning your finances for the new year it is critically important to know and understand the strength of your current financial position. You can do this by running through the exercises below. 

• Understand your financial obligations relative to your income: 

Are you carrying high levels of debt relative to income? What is the composition of this debt: is it mostly in high-interest credit cards or a low fixed-rate mortgage? The 36% Rule states that your debt to income (DTI) should never surpass 36%. When your DTI rises above 36%, your personal balance sheet is fragile and you become more exposed to financial risk. In these difficult times of uncertainty, it’s important to keep your DTI low so as to maintain financial flexibility. 

• Upcoming big-ticket expenses: 

Do you plan to make any big purchases or financial outlays in the coming year? Perhaps you’re planning to buy a home and purchase a new car or pay the tuition for your child to attend their first year of college … These are big expenses that can stress the strongest of personal balance sheets if one doesn’t plan properly. That’s why it’s important to note these at the start of the year so you can start preparing for the expense. 

  • Nonessential spending: 

Frequent dinners out and vacations at the beach are fun but if they come at the cost of putting a strain on your financial security, they can cause more stress than they’re worth. A good exercise for planning for the coming year is to look back at your expenses from the year before and see where you’re maybe spending a little more money than you’d like. Those $6 lattes every morning add up! 

2.) Set your personal financial goals 

To cite the oft-quoted baseball sage, Yogi Berra “If you don’t know where you’re going, you’ll end up someplace else.” Financial planning and goal setting are critically important to protecting your resources and securing the future you want. From a practical standpoint, this means doing a number of key things at the start of each year. 

  • Set a target retirement savings amount: 

Retirement might be a ways off for you, or not. Regardless, it’s never too early or too late to start planning for it. The rule of thumb is that you should aim to stash 10%-15% of your pretax income into a retirement savings account each year. The earlier you can start doing this the better because that puts the power of compounding in your favor.  

  • Invest, invest, invest: 

The best way to grow your wealth over time is to start investing early and often. This means putting a percentage of your income into low-cost stock and bond indices, on a consistent and regular basis.  

  • Take control of your debts: 

Turning back to keeping your DTI below the key 36%, debt is a financial burden that has to be dealt with before it grows out of hand. This takes time and planning. Just like how the power of compounding works in your favor in investing, it works against you when you carry large amounts of debt if you’re just paying the minimum. Continue Reading…

Precious Metals are the bedrock of the financial world

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By Nick Barisheff

Special to the Financial Independence Hub

Precious metals are the bedrock of the financial world. They have permanent value and are the oldest form of money in the world. If you don’t own physical gold and silver, your investment portfolio lacks a sound foundation. Precious metals are often sought after as a store of permanent value, and as a method of diversifying portfolios.

While cash, bonds, stocks and real estate offer investors financial diversification, precious metals underpin all other assets, particularly during times of economic turbulence and market turmoil.

Imagine an upside-down pyramid containing successive layers of asset classes.

Exeter’s Pyramid

That’s what the late John Exter envisioned when he devised a model ranking assets based on their risk level and financial soundness. The American economist and central banker placed risk-free gold at the apex of the inverted pyramid, below Federal Reserve cash, U.S. treasury bills, notes and bonds, AAA-rated corporate bonds, paper currencies, certificates of deposit (CDs), bank deposits, commercial paper, state and municipal bonds, junk bonds, segments of the Eurodollar market, Third World debt, insolvent borrowers and thrifts. [See graphic on the left]

A monetary researcher and visionary, Exter understood how gold’s scarcity and trustworthiness made it foundational in an unstable financial world. He knew gold would endure amid expanding debt and an unlimited supply of paper currencies, which he referred to as “IOU Nothings.”

Exter’s original gold-based pyramid is a simple yet timeless way of viewing a top-heavy financial infrastructure, which today is burdened by $1 quadrillion in unregulated derivatives, $270 trillion in snowballing global debt and trillions more in unfunded liabilities. In an overleveraged and indebted world, gold is the keystone, supporting all other assets that bear greater risk and loss potential.

Consider these examples:

  • Cash deposits and government bonds lose value to inflation in a low-interest or negative-interest rate environment.
  • Corporate and municipal bonds can become worthless when companies fail and cities default due to excessive debt.
  • Stocks can decline during stock market crashes and may become worthless.
  • Even real estate investments can decline in value when financial bubbles pop and property markets collapse.

All investments ebb and flow with the economic tides. Less stable ones drift like shifting sand. Some wither and perish in the barren financial desert. Physical precious metals endure through the ages. They withstand market chaos and weather financial storms. They retain value. Physical bullion will never become worthless. That’s why gold, silver and platinum are essential in a balanced and diversified portfolio.

Paper-based precious metals investments are riskier

Not all precious metal investments are alike; however, some are riskier than others, especially paper-based products.

Trading precious metals contracts — such as futures and options — on the commodity exchanges is the most speculative, along with owning stocks of startup mining companies that explore for gold and silver deposits. Continue Reading…

Emerge ARK ETFs: 5 ways to add Innovation to portfolios

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Investors are always looking for an edge to boost their portfolio returns. Some like to scratch that itch by picking individual stocks, on the hunt for the next Apple, Amazon, or Microsoft. Others delve deeper into the realm of penny stocks, hoping to unearth a hidden gem.

There’s nothing wrong with introducing some ‘explore’ to your ‘core’ holdings of low cost, globally diversified ETFs. But a better way to spice up your couch potato portfolio is with a thematic or sector specific ETF that spreads your risk across many individual companies.

That’s exactly what Emerge ARK ETFs have done. Launched in Canada last July, Emerge ARK ETFs include five products that focus on disruptive, innovative technology. Indeed, months before technology stocks dragged the stock market out of its COVID-19 induced crash, Emerge ARK ETFs gave its investors exposure to the cutting edge in genomic healthcare, fintech, robotics, autonomous electric cars, battery storage, cloud and cyber security, and big data.

That exposure has led to some eye-popping returns:

 

Ticker ETF Name 1-Year Since Inception
EARK EMERGE ARK GLOBAL DISRUPTIVE INNOVATION ETF 115.2% 74.7%
EAGB EMERGE ARK GENOMICS & BIOTECH ETF 129.5% 83.4%
EAUT EMERGE ARK AUTONOMOUS TECH & ROBOTICS ETF 92.2% 61.2%
EAAI EMERGE ARK AI & BIG DATA ETF 127.9% 86.2%
EAFT EMERGE ARK FINTECH INNOVATION ETF 88.9% 62.1%

 

*Performance as of December 1, 2020 | Since inception annualized July 29, 2019

 

Investors are beginning to take notice. Emerge has attracted $125 million in assets under management (November 30 2020), which makes them a tiny player in a market dominated by giants like RBC iShares, BMO, and Vanguard. But $26 million of that flowed into Emerge ARK ETFs in October, giving Emerge the highest percentage gain (compared to assets under management) in the market.

A Look at Emerge ARK ETFs

I recently had the opportunity to interview Emerge CEO and founder Lisa Langley about her company and its impressive ETF line-up.

1). You launched Emerge last summer and introduced five actively managed ETFs that focus on disruptive and innovative technologies. What led you to this specific niche or sector?

We saw a gap in the market for truly actively managed ETFs particularly in the disruptive innovation space. With our affiliate company in the US, Emerge has a long relationship with ARK, so we asked them to enter the Canadian market with us and they were excited to do so.

2). The Canadian investment landscape is still dominated by mutual funds, and the much smaller ETF market includes giants like RBC iShares, Vanguard, and BMO. How do you see Emerge carving out meaningful market share in this environment?

By truly being at the forefront of innovation. Emerge ARK ETFs are sub-advised by ARK Invest and the brilliant Cathie Wood, CEO/CIO. The ARK Invest research process is unique globally and they can drive results through their deep domain expertise. ARK’s research team is like no other. We are starting to set ourselves apart from the others with our incredible performance and access to ARK Invest’s long-lens on disruptive innovations and how best to play them in the market. Emerge wants to be known for bringing differentiated talent to the Canadian investment landscape.

3). The most obvious selling point to me is the strong performance of your five Emerge ARK ETFs. To what do you attribute this exceptional performance?

The phenomenal global research team at ARK Invest and their forward-thinking global approach and their active management of each ETF.

ARK didn’t have to pivot when COVID hit, they were already there. ARK has always been solely focused on technology driven disruptive innovation. The analysts at ARK have deep domain expertise. ARK is focused on the long-term with minimum forward forecasts of 5 years, so they understand the unit economics and each stock’s potential. ARK is not looking short-term and reacting to the usual quarterly earnings, instead they focus on the long-term potential of the fastest growing general technology platforms.

The ARK investment process opens the door to exceptional performance.

4). Give us a high-level overview of the five ETFs and their portfolio manager.

Cathie Wood, CEO/CIO, ARK Invest is the Portfolio Manager/sub-advisor to all of the Emerge ARK ETFs. Cathie founded ARK Invest in 2014. Previously she completed 12 years at AllianceBernstein as CIO of Global Thematic Strategies. ARK Invest believes in truly actively managed ETFs and they are benchmark agnostic. ARK does not need a backward-looking benchmark, because their analyst team with deep domain expertise provides the reference point.

The Emerge ARK Global Impact Disruptive Innovation ETF (EARK) is the “best picks” portfolio and the umbrella ETF of the following four, which includes all main themes of disruptive innovation. Then we have four more deeper dives into particular themes:  Continue Reading…

Why choosing the right Finance App is so important

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By Emily Roberts

For the Financial Independence Hub

So many areas of our lives were impacted by the Coronavirus pandemic that it’s easier to pick one that wasn’t massively altered by locking down, staying at home and avoiding touching strange surfaces at all costs. It should come as no surprise that there has been a massive increase in the use of personal finance apps in 2020, with 59% of people in the UK using a mobile banking app.

But picking the right finance app for you will depend on what you need it for. Are you in desperate need of some guidance for managing debt repayments? Or are you looking for the perfect platform to manage your investment portfolio? Or are you simply looking for something that will help you keep track of your day to day spending?

Staying on top of your invoices

Any freelancer will tell you that getting the work is only part of the battle; the biggest challenge is getting paid. If you run your own business or you’re set up as your own limited company, you need a finance app that helps you stay on top of your invoices, manage your budgeting and accounting, and help calculate your tax returns. Software like FreeAgent, Coconut, Paymo or Fyle all offer different kinds of banking and finance support for freelancers and self-employed people so you can keep track of work going out and money coming in.

Easy access to your investment portfolio

If you have an investment portfolio set up, you’re going to want to be able to access it at all times to see how well your money is working for you, and to check if any urgent changes need to be made. Some investment apps are set up to help you get started, others are aimed more at the veteran investor who knows exactly what they’re looking for. Continue Reading…