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).

Retired Money: How to play the 5G Revolution

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5G wireless will facilitate A.I., blockchain, Internet of Things, Smart Cities and other technologies.

My latest MoneySense Retired Money column looks at an investing theme that’s very popular in various newsletter services, and just now hitting the market: 5G, or Fifth Generation wireless Internet. Click on the highlighted headline to retrieve the full column: Investing in 5G.

One thing the Covid bear market has revealed is the popularity of technology in general, mostly epitomized by stocks trading on the Nasdaq exchange. True, the market has mostly recovered, but few think the tech wave is going away any time soon: certainly not the tens of thousands of young investors who flock to the Robinhood trading site.

5G is a key technology, not just for its own sake but because of several allied technologies it enables.

Recall that currently we are in 4G, which succeeded 1G, 2G and 3G. 1G was the technology that enabled the first cell phones; 2G brought text messaging, 3G was Internet access for cell phones and 4G higher speeds (albeit in overloaded networks.)

5G describes the technological  innovations and infrastructure that will support the next era of connective technology. But don’t fall into the trap of thinking 5G is just 20% more powerful than 4G. In fact, it’s orders of magnitude more bandwidth, meaning blazing Internet speeds and almost no latency (waiting) times.

5G igniting explosion in AI, IOT, Blockchain and other technologies

The need for a quantum leap in Internet speed may have become apparent during the Covid lockdown, when the whole world discovered the benefits of work-from-home technologies like Zoom or  Cisco’s Webex. Continue Reading…

More time is a goal worth chasing

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By Mark Seed, MyOwnAdvisor

Special to the Financial Independence Hub

“Happy Weekend!” this blog or friends or others will exclaim!

On that note, most of us (myself included) are always so happy to see the weekend arrive, or a given weekday dawn, depending upon your schedule or shift of course to enjoy some well-deserved time off from work.

Yet as I inch closer to fulfilling my semi-retirement dreams (our latest financial independence update you can find right here) I often wonder if every day is going to feel like a Saturday in the years to come.

I mean, part of me hopes so, when I think of time. Finding a much broader, balanced approach to work and fun …

Here are some of the perspectives I’ve been thinking recently when it comes to work, play, time, and to the point of this blog, what does money have to do with it.

If you really enjoy your job, does it feel like work?

While there never seems to be enough time for anything these days outside of work (blame your lost downtime on your social media time for starters!), I’ve often wondered about folks who really, really love their job – does it feel like work to them anymore?

Here are some signs of that:

  • New tasks or assignments don’t annoy you or bother you, in fact, you might get your energy from them.
  • You enjoy seeing the results of your craft frequently.
  • You enjoy working with those around you or people you deliver products and services for.
  • You are continually inspired by work.

I’m sure there are more …

There are definitely elements of the above that apply to my current role with my employer but as I get closer to realizing my financial independence, I must say I’m very much looking forward to the day whereby my most of my time (therefore not money whatsoever) is the ultimate management goal.

While time is money can be true in many corporate circumstances, the inverse is true after you realize financial independence – money has purchased some discretionary, finite time for you to use as you please. Financial independence makes work either far more fun or just simply optional.

Money does buy happiness to a point

Despite rising incomes, standards of living increasing around the world over time, people are also feeling increasingly pressed for time, anxious and stressed about well-being. With this rising income, happiness only increases to a point – surveys from various studies have shown that money only buys so much happiness.

Depending on the study you want to draw from, psychologists have found that modest life satisfaction comes from earning anywhere between $60,000 to $75,000 USD per year. Some families with children of course may need (and want) more, let alone individuals as well.

Time Spent and Money Spent

Now, certainly, if you make more money than this income per year could you be happier? I suppose that is quite possible and very likely for many of us. But my point is based on many studies, considerable orders of money beyond this income-level will not buy the equivalent amount of increased happiness. The relationships you have and the stable family environment you might enjoy, probably do. Your health is your ultimate form of wealth. That well-being will give you tremendous happiness too. In fact, with your health, it has been written and studied that volunteering, just as one example of giving, has been shown to minimize stress, reduce incidence of depression, and reduce long-term cognitive impairment – helping us live longer and more notably, a happier life.

So, while making good money is all well and good; while having a high net worth can absolutely signal to you and others “you’ve made it” happiness unlike money has a tipping point. Money is only part of what might make you truly happy.

A good reminder that any art of comparison to others can be the thief of joy.

Time is the ultimate currency

When it comes to investing, we’ve all heard that it’s time in the market that becomes your best friend (not trying to time the market itself).

That’s because the earlier you start investing, the more time your money has to work for you. Continue Reading…

Online investment ideas during the Pandemic

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By Veronica Baxter

Special to the Financial Independence Hub

Do you have an extra $500 or $1,000 and want to learn something about investing? This article will explore some interesting online investment vehicles that can teach you something about investing, make you some money, and perhaps even further your social ideals.

But before you invest …

Pay off your Credit Cards

Is that $500 or $1,000 really “extra” money you can afford to play around with? If you have any credit card balances, it’s not. Use that money to pay your credit cards off before you start investing. Why? Because no investment in that amount will bring a return greater than what you’ll save by not paying credit card interest on that revolving balance.

For example, let’s say you have $1,000 in credit card debt at 18% interest. If you pay the minimum of $60 on that debt each month, it will take you 20 months to pay off, and you will have paid $158 in interest.

No investment exists that can make you anything near the $158 you spent borrowing that $1,000 from your credit card lender for 20 months. Pay that credit card balance off with your “extra” money and save up another $500 or $1,000 to play with.

Contribute to your Employer’s 401(k)

If you are not yet contributing to your employer’s 401(k)[in the U.S., Canadian equivalent is a group RRSP or Defined Contribution pension plan], start doing so, especially if your employer offers a matching contribution. Why? First, because if you are not contributing at least the amount your employer matches, you are leaving free money on the table. Second, when you contribute to your employer’s 401(k), you do so with pre-tax dollars, and thereby reduce your taxable income. This lowers your income tax bracket and you pay less income tax overall.

Contributing to your employer’s 402(k) is a win-win for you, so do that before investing “extra” money.

Exploring virtual Investment vehicles

Investment Apps

There are myriad reputable investment apps for your smartphone that vary in the amount of control you have over your investments and trades, and the amount of advice and data available, and the type of accounts you can have. Here are a few, just as examples:

Most control and lowest Fees: Robinhood

Robinhood can be described as a sort of bare-bones app, and while there is no account minimum and there are no commissions on trades, there are also no additional accounts available such as retirement accounts, and there is no data on investments.

This type of app is for the person who wants to save on fees and is not afraid to research investments on their own.

Most Investment data: E*Trade

If you want to do your research and trade in the same app, this is one to consider. You can learn about a company’s earnings, dividends, company news, and metrics like debt-to-equity ratio. You do pay for this feature –  US$6.95 a trade. But beginners and experienced investors alike can appreciate the wide range of investment options available and the ability to invest in a way that is aligned with their risk tolerance.

Most Banking features: Stash

For only US$3 per month, this app offers management of your banking, investment, and retirement accounts in one place. Fractional shares of ETFs and stocks are available, but a limited selection. If you can pay $9 per month, the app offers an upgrade allowing access to investment research, two more accounts, and expanded reward features.

Stock Market Robo Advisors

Do you want professional help with investing but don’t want to pay for a financial advisor? Try a Robo Advisor. These offer varying degrees of assistance, control, automation, investment data, availability of investment types, and fees. Continue Reading…

Don’t be smug about Markets

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By John DeGoey, CFP, CIM

Special to the Financial Independence Hub

Many American commentators are gleefully noting that the pandemic-induced bear market for the S&P 500 is now officially on record as the shortest bear market in history.  The stark reality of a pandemic-induced economic slowdown has been countered with a federal reserve-induced monetary stimulus the likes of which has never been seen before.  The first two thirds of 2020 have been remarkable because those nearly eight months have featured not only unprecedented bad economic news, but also a swift and equally unprecedented policy response to counteract it.  As I write this in the second half of August, the American stock market is now slightly higher than where it was to start the year and the Canadian market is slightly lower.

The bear market lasted just over a month.  Using simple math, we experienced a drop of about 1/3 followed immediately by a rise of about 1/2.  Think of it this way.  Say we’re starting with a market level at 300.  A drop of 1/3 brings you down to 200, but a subsequent rise of 1/2 gets you back to 300.   In the half year between February 19 and August 19, we’re right back where we started.  Now what?

“Don’t fight the fad” never so apt?

The easy narrative is that the storm has passed and the crisis has been averted (or, at a minimum, was extremely short-lived).  I have had many experienced people remind me that the phrase “don’t fight the fed” has never been more apt.  Looking back over the landscape from late March to the present, I grudgingly agree that that has been the case.  By making traditional income investments look extremely undesirable, people have opted to buy stocks pretty much by default.  You may have heard the acronym TINA.  It stands for “There Is No Alternative.”  That’s what central banks around the world have done. They have quite literally taken away all plausible alternatives for retail investors seeking a return on their capital investments. Continue Reading…

Determining your Financial Independence number

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By Mark Seed, MyOwnAdvisor

Special to the Financial Independence Hub

Passionate readers of this site have long understood I’ve never been fully convinced about the “retire early” element in the Financial Independence Retire Early (FIRE) movement.

I mean really, what 30- or 40-something is never going to work for any money ever again??

(Answer = you know it.)

Surely some of them will hustle a blog, a course, a book, a podcast or other at some point. The list goes on.

Such FIRE-seekers and very early retirees are not likely misleading people on purpose: some are just simply entrepreneurs …

Forget “RE”, “FI” is the worthy goal

While I couldn’t care less about the retire early part of FIRE, I am working towards the FI part and have been doing so for at least a decade now.

I think most people should absolutely strive for FI instead of early retirement. (See this 2019 blog, Strive for Financial Independence, not Early Retirement).

How much do you need to save for any comfortable retirement?

“It depends.”

According to Fidelity, to be on track for a healthy retirement:

  • You should have x1 your annual salary saved up for retirement by age 30.
  • You should have x3 your annual salary saved up for retirement by age 40.
  • You should have x6 your annual salary saved up for retirement by age 50.
  • You should have x8 your annual salary saved up for retirement by age 60.
  • You should have x10 your annual salary saved up for retirement by age 67.

As a 40-something, according to the pros we should have at least x3-x6 of our annual savings in the bank.

I’m glad I don’t listen to Fidelity. We’re beyond that milestone and we’ll be better off financially (sooner) because of it.

Here in Canada, MoneySense did some similar work on this a while back:

 

MoneySense - how much is enough

Do you really need this much? $1 million or $1.5 million? More?

“It depends.”

I can’t tell you unfortunately: since that answer comes with a complex set of income needs and wants and everyone’s spending goals are very, very different.

I can say with a rather firm set of certainty that if any Canadian or U.S. citizen that amasses this much portfolio value by age 65 and has modest spending needs they will be far better off financially than most.

Our FI number

For years, I’ve pegged our FI number to be around the $1 million portfolio value mark not including any home equity (and our soon-to-be debt-free home: we have to live somewhere!), excluding our workplace pensions, and excluding any future government pensions such as Canada Pension Plan or Old Age Security.

I largely arrived at this number by using a rather standard FI formula.

Financial Independence means:

  1. earning enough passive income from my assets such that my asset-producing passive income is > general expenses, and/or
  2. amassing a portfolio value such that reasonable withdrawals will be > general expenses for many decades on end.

What are reasonable withdrawals???

You could argue the birth of any reasonable and therefore any safe portfolio withdrawal formula was originated by U.S. financial advisor William Bengen.

4% rule

You can read about his genesis for the 4% rule and why it still makes sense by reading this blog from earlier this year: Why the 4% Rule is (still) a decent rule of thumb.

Following Bengen and largely reinforcing his work, three professors at Trinity University published a paper about safe retirement withdrawal rates.

Those professors looked at stock and bond data from the mid-1920s through to the mid-1970s and their conclusion was that essentially over any 30-year investment period in that range, a retiree could safely withdraw 4% of their total assets per year without much fear (meaning barely any fear) of running out of money. Only in a handful of cases, the very worst cases in any 30-year period, would the portfolio go to absolute zero.

So, let’s look at that context when it comes to our goals:

If we managed to enter retirement with our desired $1 million goal of invested assets (along with no debt of course), then we could reasonably expect to assume we could withdraw $40,000 per year for our living expenses from that portfolio with very little fear of running out of money.

Henceforth, the study by those three professors from Trinity University, The Trinity Study, have set the framework for a gazillion FI number crunching exercises to this day and likely the same number into the future …

Determining your FI number 

Here are some options to crunch your math. Continue Reading…