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).

5 apps to help get your personal finances on track

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By Julia Faletski (Sponsor Content)

For many people, managing your money means simply checking your bank account every month and paying your bills. That’s a great starting point. But if you want to get on a strong financial footing and maybe even retire a millionaire, you’ll need to set goals and have a plan for how to get there. That means budgeting, saving, building a strong credit score, and more.

Fortunately, today’s technology means you don’t need to be a math wiz to make these smart money moves. In fact, you don’t even have to look at a spreadsheet. There’s an app for that.

To help you get started, we’ve curated a list of apps that will help you automate —  and dominate — your personal finances:

Budgeting

To start out your financial journey, you’ll want to know how you’re doing today. Budgeting is probably the most fundamental aspect to personal finance. There are lots of budgeting apps out there, but Mint is one of the more well known ones for a good reason. Mint allows you to manage your finances from beginning to end: you’re able to link banks accounts, credit cards, investment accounts (like WealthBar!) and bills. You can track your spending, create a budget, and see a complete picture of where your money is going, all in one place. It’s great for both keeping track of your day-to-day transactions and long-term goals.

If you want more of a step-by-step guide to creating and following a budget, take a look at You Need A Budget (YNAB). Not only are you able to link accounts and track expenses, but you can also get advice on how to pay down debt, manage monthly expenses, and accumulate savings. It’s always a bonus when a company infuses their features with financial education. Knowledge is power!

Taxes

We get it, tax season probably isn’t your favourite time of the year. Luckily, apps like TurboTax aim to make filing your taxes painless. The app will take you through a number of easy-to-answer questions — prompting you to provide the pertinent information — and then it will do the calculations for you. No need to go through all the tedious steps yourself! The goal is making sure no money is left on the table in unclaimed deductions.

Credit score

Having healthy credit goes a long way when you need to borrow money for a big purchase like a house or even get a credit card. Credit Karma allows you to take the guesswork out of understanding your credit score. They make it easy to access your credit rating for free, understand what is positively or negatively affecting the rating, and see how you can improve it. Continue Reading…

Mark Seed’s hybrid Income Investing and Retirement Strategy: Your questions answered

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By Mark Seed
Special to the Financial Independence Hub
Image courtesy of iShares

 

For many years now, I’ve been a huge fan of dividend investing.

Dedicated readers will know I’m on a mission with this strategy – an aggressive one at that – to hopefully earn $30,000 per year in dividend income from a few key accounts.

I figure this income stream, supplemented with other assets (e.g., RRSPs, workplace pensions, other), should set us up well for semi-retirement in the coming years.

While I love dividends, especially from my Canadian stocks, I invest beyond Canada’s borders using some low-cost U.S.-listed ETFs.

You can find some of my favourite ETFs to own here.

I invest this way (more than ever) since I believe in portfolio diversification.  In using some low-cost U.S. ETFs, I obtain this diversification and therefore opportunities for long-term growth at a very low cost.

This makes me a ‘hybrid’ investor: using a basket of Canadian (and some U.S.) dividend growth stocks for passive, rising income and using some low-cost ETFs to ride the general stock market equity returns.  I believe in this two-pronged approach since it should not only provide some passive income for life, but it should also deliver capital appreciation as well.

Like other Canadian bloggers that I look up to, I’ve been building my dividend stock portfolio (and adding to it) since around 2008-2009.  I’m well on my way to earning the desired $30,000 per year from a few accounts: a recent update you can find here.

Should you follow this approach?

Is hybrid investing right for you?

Well, check out the rest of this post and you can decide …

Your Ever Growing Income

My friend and past contributor to this site, Henry Mah, recently released a book called Your Ever Growing Income.

You can read about the Canadian and U.S. versions of that book here.

Henry recent encouraged bloggers and passionate investors like myself to publish some answers to a few questions: about income investing and my retirement strategy.

Today’s post does just that!

Income Investing and my Retirement Strategy

1.) What stocks should you buy and why?

I have a bias to owning companies that have a long, established history of rewarding shareholders.

You can see some of the very dividend-friendly histories of many Canadian stocks here.

On my Dividends page, I have highlighted some of the stocks I own; they are:

  • Canadian banks (examples:  RY, TD, BNS, BMO, CM).
  • Canadian insurance companies (examples:  SLF, MFC, GWO).
  • Canadian pipeline companies (examples:  ENB, TRP, IPL).
  • Canadian telecommunications companies (examples:  BCE, T).
  • A few major Canadian energy companies (like SU).
  • Canadian utilities (examples:  FTS, EMA, AQN, CU, CPX, INE, BEP.UN).

My thinking?

Basically, I buy companies that people need.  People need to bank, so I own banks.  People need insurance, so I own insurance companies.  Last time I checked people want to heat and cool their home(s) in Canada, so I own those companies too.  I think you get the idea …

I also own a number of Real Estate Investment Trusts (REITs).  Examples include REI.UN, HR.UN, CAR.UN, CHP.UN and a few more.  I’ve basically unbundled REIT ETFs like ZRE, XRE and ZRE to own those companies directly.

I tend to own what the big funds in Canada own.  I don’t pay any money management fee to do so. [See holdings of the iShares i60s shown at the top of this blog.]

2.) How do I evaluate the merits of the stocks I am considering?

My approach is rather simple:

  • If the Canadian company pays a dividend, I might consider it.
  • If the Canadian company has paid a dividend for many years, I will consider it.
  • If the company has paid a dividend for decades or generations, I will most undoubtedly want to own it.
  • If the company has raised its dividend for decades or generations, I probably already own it.

As part of my portfolio, I also consider the following when buying and holding stocks:

  • Sector diversification: given Canada is dominated by financial and energy sectors, I try to invest in healthcare, consumer stocks and technology companies state-side via low-cost U.S. ETFs.
  • Earnings: I look at company earnings for any longer-term warning signs.
  • Payout ratio: I look at the company’s dividend payout ratio for any flags.
  • High yield: I try to avoid chasing yield since I believe consistent dividend growth and increases (ideally year-after-year) are some keys to wealth creation; not owning a high-yield stock whereby the dividends are likely unsustainable

3.) When should you invest more money into new stocks or the ones you already own?

Tough question!

I can’t predict the future … although I wish I could.

For the most part, I don’t deviate very far from the existing ~30 Canadians stocks I own.  I tend to buy more shares in the stocks I own when they’ve been beaten up.  If people have a hate-on for banks, I buy them.  If REITs have been punished of late, I buy those.  You get the idea.  I hope to rinse and repeat this approach until wealthy.

That means, I’ve essentially unbundled the top-Canadian ETFs like XIU, XIC, VCN and a few others for passive income.

Maybe you shouldn’t take my word for it.  Here is some very sage advice:

“The selection of common stocks for the portfolio of the defensive investor should be a relatively simple matter.   Here we would suggest four rules to be followed:

  • There should be adequate thought not excessive diversification. This might mean a minimum of ten different issues and a maximum of about thirty.
  • Each company should have a long record of continuous dividend payments …
  • Each company selected should be large, prominent, and conservatively financed …
  • The investor should impose some limit on the price he will pay for an issue in relation to its average earnings over, say the past seven years.” – Benjamin Graham, considered the father of value investing; most well-known disciple of his teaching: Warren Buffett. 

4.) When should you sell your stocks?

Hardly ever.

I mean it.

As long as the dividends are paid and continue to increase year-after-year, I will own the stocks I do:  the banks, the utilities, the pipelines, the telcos, and so on,

That said, no company nor investing approach is perfect so if the company you own stopped increasing its dividends for a few years, it might be time (depending upon the broader economic climate) to ditch the company.

5.) Should you be worried when the market and prices are going down? Why?

No.

I mean that too.

Why?

Consider stock prices going down like a sale.

Investing in the stock market seems like the only place in the world where people don’t celebrate paying less for something they want to buy.

If your intention, like mine, is to own a basket of dividend paying stocks that have a long track record of rewarding shareholders with raises, then you should really learn to train your investing brain and look at broad market declines as a great way to celebrate buying stocks on sale.

Here’s how to prepare for any market meltdown. Continue Reading…

The problem with Preferred Shares

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By Ian Duncan MacDonald

Special to the Financial Independence Hub

You identify preferred shares by their stock symbols. Their symbol contains a “PR” or a “PF.”  For example, an Enbridge Inc. preferred share is ENB.PR.N.

Preferred shares pay dividends, often in the range of 5 or 6 per cent. This is usually one or two per cent more than what the company pays common share holders.

Like a bond, they are a form of loan; thus they do not share in the capital gain of a corporation, nor do they have any ownership or voting rights. While they rank ahead of common shares in realizing money from a company’s liquidation, they rank behind bondholders. Their ranking is of little benefit.  After the lawyers, bankruptcy trustees and the banks (with their fully secured debentures) are paid off, the chance of anything being left for distribution is just about nil.

While you can conveniently buy and sell preferred shares on the stock market very few investors have any interest in them.  Zero trades in a day is not unusual. There are 654 shares on the TSX pay paying a dividend of 3.5%. or more.  Of these, 364 are preferred shares and of those only 112 had more than 4,000 shares traded in a typical day, despite their high dividends. This is due to the low possibility of preferred shares delivering an increase in share price to speculators.

Preferred shares are issued at a standard price of $25 each. Of the 364 preferred shares only 17  had a share price exceeding $25 and of these only one was greater than $30.  The chance of realizing a capital gain from a preferred share is 1.91% and 183 or (50% of them) had lost at least 20% of their value.  They were now worth less than $20. Five were trading for less than $10.  It is not surprising that not one analyst recommended that investors buy any of these 364 preferred shares. Continue Reading…

How to use your retirement plan to fund your dream business

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By Eric Goldschein

Special to the Financial Independence Hub

If you’ve decided to take the leap and start your own business, you probably have one pressing question on your mind: Where will you get the money to fund it? 

Startup costs can drain personal bank accounts, and few business owners are in a position to qualify for affordable small business financing right away. Lenders tend to prefer long-established businesses. 

If you’ve been a diligent financial planner and have been saving up for retirement, you may have access to a low-cost source of business funding: your own retirement plans. Here are three ways to use your retirement to fund your dream, whether that’s an e-commerce business or a restaurant: 

1.) Use a 401(k) business loan

Some 401(k)s and other eligible retirement plans in the U.S. — 403(b), and 457(b) plans and profit-sharing plans — allow you to loan yourself either US$50,000 or up to half of your vested balance (whichever is less). 

If you are testing out your business as a side hustle and will remain employed and contributing to your retirement plan, this is an excellent option. A 401(k) loan gives you access to low-cost funding (interest rates are usually the prime rate plus 1%) that you can use to see if your idea is worth investing in further. 

You also won’t pay any additional fees or penalties for taking out this money, unless you default on your payments: in which case the IRS will treat it as a regular withdrawal, incurring penalties. 

If you need $50,000 or less to improve your new business, contact your plan administrator to get the ball rolling.  

2.) Use a “rollovers as business startups” plan

Do you need more than US$50,000 in business funding, and are you ready to work on your business full time? If so, you can use a rollover as business startups (ROBS) to access funds from a 401(k), IRA, or other eligible retirement account without penalty. 

There are a few qualifications you need to meet to use a ROBS plan:

  • Your business must be a C-corporation (if it isn’t, you must restructure it). 
  • Your retirement account needs at least $50,000 in it, and it cannot be a Roth IRA. 
  • You must be an employee of the business and receive a salary. 

The next steps are a bit complicated, but the basics are as follows: Set up a new retirement plan under your C-corp. Roll over your funds from your existing retirement plan to your new one. Then, your C-corp sells stock to the retirement plan, and you use the proceeds from that sale to fund your business—buying new inventory, renovating your space, or any other general business needs. An accountant, lawyer, or financial service can help you do this. 

This isn’t a loan, but a constructive use of your retirement funds. The biggest risk here is losing your retirement funds in pursuit of small business success. If you think that’s a risk worth taking, this is a good bet.    Continue Reading…

Personality, Progress and Promise in Japanese Leadership

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Mt. Fuji, Japan

By Jesper Koll, WisdomTree Investments

Special to the Financial Independence Hub

Prime Minister Shinzo Abe’s Japan is a forward-looking, pragmatic bastion of stability in an increasingly uncertain world. The cabinet reshuffle in September cements the unique position that Japanese politics and policymaking occupies relative to most other democratically elected governments. Abe is in complete control of his destiny, picking and choosing competent and loyal elected parliamentarians to further advance his agenda.

Right from the start in December 2012, the goal of “Team Abe” has been single-minded, echoing the rallying cry that inspired the leaders of the Meiji Restoration: “Fukoku Kyohei — Strong Country, Strong Army”. Don’t get me wrong: this is not about rearmament like it was during the 19th century Meiji era. I draw attention to the Fukoku Kyohei rallying cry to stress that Team Abe is perfectly focused and capable of using political capital for both a strong economy and constitutional reform. In fact, without the first, the second may never happen.

In my experience, Abe’s leadership team has always remained relentless in pursuing strategies that aim to restore Japan’s place in the world as a respected, admired and worthy top-tier nation. They know that a strong, growing and competitive economy is the most necessary condition to achieve that goal. The second condition is a stronger, smarter and more independent sense of national self-determination and pride among the Japanese people. This is where Team Abe is convinced constitutional reform is necessary as a powerful symbol and catalyst for greater national unity and understanding of what Japan is and wants to be.

The “Abe–Aso–Kuroda” master class in Policy Pragmatism continues

First, for economic policy management, the Abe–Aso–Kuroda central axis got reinforced. Nowhere else in the world of global policymaking can you find such a consistently well-coordinated and decisive axis of power between the prime minister, the fiscal authority ( Finance Minster Taro Aso) and the central bank (Bank of Japan Governor Haruhiko Kuroda). The Abe–Aso–Kuroda triumvirate will continue their master class in policy coordination. Where the U.S. and Europe are wasting time debating terminology and procedure, Japan is way ahead in actually implementing “fiscal dominance” and “modern monetary theory”. The Abe–Aso–Kuroda axis simply gets on with it because they have something that both Europe and the U.S. appear to have lost: political and policy consensus.

At least to this observer, Europe and the U.S. bring to mind the fumbling and growing desperation that Japan went through during the long period of political instability before strongman Abe arrived. To turn modern monetary theory into practice, you need functioning and decisive fiscal coordination and plans that go beyond the expediencies of annual budget cycles or election cycle pork-barreling. No fiscal policy vision, no fiscal dominance … make no mistake! Abe–Aso–Kuroda do know what they want to spend on.

In clearer terms, watch for a boost in fiscal spending if or when global or local economic momentum loses steam. The Bank of Japan will finance the added borrowing requirement if excess savings fail to absorb it.

What about “Structural Reform?”

Here, the cabinet reshuffle opens the door for new ideas and initiatives. Both the ministers for Economy, Trade and Industry (METI) and for Economic Policy have been replaced with U.S.-educated, highly competent young leaders. It is right to expect a pickup in the metabolism of structural reform policy proposals, with a particular focus on boosting entrepreneurship, speeding up industrial reorganization (e.g., M&A, MBO and spin-out rules), regional revitalization and special economic zones, etc. Importantly, the new METI minister, Sugawara Isshu, served as vice-finance minister before, which could lead to closer linkages between tax incentives and industrial reorganization. Continue Reading…