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).

Avoiding blind spots in financial advice

Posted By Financial Independence Hub | October 30, 2019

By Darren Coleman

Special to the Financial Independence Hub

In my last blog, I took on those Questrade TV commercials where the client schedules a meeting with their financial advisor to tell them they’re fired. While people don’t normally schedule a meeting with an advisor to do such a thing, I think the real story is that the client does not experience value from the relationship. And if that’s the case, not paying the fee and moving on makes perfect sense.

But that doesn’t mean doing it yourself is the best idea. Investment management and financial planning is more complicated and intricate than people realize. Having access to tools doesn’t make you an expert; I can buy everything I need to renovate my house or rewire my kitchen, but that doesn’t mean I should. Better to leave this to Mike Holmes. Here are some key areas when an excellent financial advisor can add great value.

Fire Drills

We all want to plan for a happy future with a comfortable retirement, maybe a new car, or an exotic holiday. People associate these things with creating a financial plan, largely due to multi-million-dollar ad campaigns by mutual fund companies. But life is not a Cialis commercial and bad things happen.

With Christmas coming get ready for media stories about the family whose house burnt down with all their possessions, including presents under the tree, going up in blazes. Then we’re told they didn’t have insurance and donations are being taken for them at the local bank branch.

To prevent misfortune from turning into tragedy, a good Financial Advisor will first have their client pay attention to planning for things going wrong. Indeed, assessing key risks to one’s financial health (i.e., premature death, disability, loss of employment, liability, critical illness) should be the primary component of a financial plan.

We also must look at documents and processes such as a will and Power of Attorney that describe what happens when we can’t speak for ourselves. Unfortunately, these are things most people do not do on their own. And if they do, they usually don’t do them with skill and adequate preparation.

A great, and valuable, Financial Advisor does more than just inquire about insurance and other documents. They run a ‘fire drill’ on the family.

Let’s say someone doesn’t come home one day because of illness or sudden death. What happens next? Who gets the call? What documents are needed and where exactly are they? Along with all this are other important questions.

What income is going to come into the household to replace those lost wages?
What paperwork needs to be filed?
Who’s going to do it?

Your employer is legally bound to run a fire drill at least once a year. Shouldn’t your financial plan do the same?

Budgets don’t balance themselves

Despite Prime Minister Justin Trudeau’s statement, I can assure you that budgets do not do this. We all have multiple and often competing demands on our time, money and energy. And when we combine the wishes, desires and needs of other family members, things may and will get derailed. Continue Reading…

The 6 phases of Financial Independence

Posted By Financial Independence Hub | October 25, 2019

By Mark Seed, MyOwnAdvisor

Special to the Financial Independence Hub

The term “financial independence” has many meanings to many people.

To some, this means the ability to work on your own terms.

To others, it boils down to not working at all but instead having “enough” to meet all needs and possible wants.

Where do I stand on this subject? This post will tell you in my six phases to financial independence.

Retirement should not be the goal: Financial security and independence should be

Is retirement your goal? To stop working altogether? While I think that’s fine I feel the traditional model of retirement is outdated and quite frankly, not very productive.

As humans, even our lizard brains are smart enough to know we need a sense of purpose to feel fulfilled. Working for decades, saving money for decades, only to come to an abrupt end of any working career might work for some people but it’s not something I aspire to do.

With people living longer, and more diverse needs of our society expanding, the opportunities to contribute and give back are growing as well. To that end, I never really aspire to fully “retire”.

Benefits of financial independence (FI)

In the coming years, I hope to realize some level of financial security and eventually, financial independence. For us, this is a totally worthwhile construct. The realization of FI can bring some key benefits:

The opportunity to regain more control of our most valuable commodity: time.
Enhanced opportunities to learn and grow.
Spend extra money on things that add value to your life, like experiences or entrepreneurship.

Whether it’s establishing a three-day work week, spending more time as a painter, snowboarder, or photographer, or you desire to get back to that woodworking hobby you’ve thought about: financial independence delivers a dose of freedom that’s hard to come by otherwise.

FI funds time for passions.

FI concepts explained elsewhere

There are many takes on what FI means to others.

There is no right or wrong, folks: only models and various assumptions at play.

For kicks, here are some select examples I found from authors and bloggers I follow.

JL Collins, author of The Simple Path to Wealth, popularized the concept of “F-you money”. This is not necessarily financially independent sums of money but rather, enough money to buy a modest level of time and freedom for something else.
Various bloggers subscribe to a “4% rule”* whereby you might be able to live off your investments for ~ 30 years, increasing your portfolio withdraws with the rate of inflation.

*Based on research conducted by certified financial planner William Bengen, who looked at various stock market returns and investment scenarios over many decades. The “rule” states that if you begin by withdrawing 4% of your nest egg’s value during your first year of retirement, assuming a 50/50 equity/bond asset mix, and then adjust subsequent withdrawals for inflation, you’ll avoid running out of money for 30 years. Bengen’s math noted you can always withdraw more than 4% of your portfolio in your retirement years however doing so dramatically increases your chances of exhausting your capital sooner than later.

For simplistic math, such bloggers calculated your “FI number” could be approximately your annual expenses x 25. So, if you’re annual expenses are about $40,000 per year (CDN $ or USD $ or other), then your “FI number” is a nest egg value of $1,000,000.

Using that framework, there are levels of FI some bloggers have adopted:

Half FI – saved up 50% of the end goal (in this case, $1 M).
Lean FI – saved up >50% of end goal to pay for very lean but life’s essentials like food, shelter and clothing (but nothing else is covered).
Flex FI – saved up closer to 80% of the end goal, this stage covers most pre-retirement spending including some discretionary expenses.
Financial Independence (FI) – saved up 100% of the end goal, you have ~ 25 times your annual expenses saved up whereby you could withdraw 4% (or more in good markets) for 30+ years (i.e., the 4% rule).
Fat FI – saved up at or > 120% of your end goal (in this case $1.2 M for this example), such that your annual withdrawal rate could be closer to 3% (vs. 4%) therefore making your retirement spending plan almost bulletproof.

There is the concept of “Slow FI” that I like from The Fioneers. The concept of “Slow FI” arose because, using the Fioneers’ wording while “there were many positive things that could come with a decision to pursue FIRE, but I still felt that some aspects of it were at odds with my desire to live my best life now (YOLO).” They went on to state, because “our physical health is not guaranteed, and we could irreparably damage our mental health if we don’t attend to it.”

Well said.

My six phases of financial independence

(Picture from our catamaran cruise, Barbados 2019)

To the “Slow FI” valuable points, since we all only have one life to live, we should try and embrace happiness in everything we do today and not wait until “retirement” to find it. Continue Reading…

How Canadians are impacted by rising home prices: National Survey

Posted By Financial Independence Hub | October 22, 2019

By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

Election season may have come and gone, but the need for affordable housing remains a top-of-mind issue for Canadians, regardless of governing political party. According to a recent national survey conducted by Zoocasa, a whopping 84% say they feel the ability to afford a home is a major issue that’s negatively impacted the population: and 78% feel the government needs to make it a priority focus.

As well, the survey findings reveal that anxiety around affordability extends beyond those who wish to get onto the property ladder; while renters express particularly strong feelings of uncertainty (93%), current homeowners are also feeling the squeeze from spiralling home values, with 80% in agreement.

Let’s take a look at the top concerns indicated by Canadians.

Incomes can’t keep pace with Real Estate prices

It’s no secret that prices for houses for sale in markets across Canada have seen enormous growth over the last five years. According to the Canadian Real Estate Association, the national average home price now exceeds half a million dollars, at $515,500 (though it should be noted that removing Vancouver and Toronto houses and condos from the equation would trim that total to $397,000).

This has left the majority of Canadians – 91% – feeling as though home prices have outstripped wages in their city or town, while another 92% say they feel rising home prices have reduced the ability of middle-class Canadians’ abilities to purchase a home.

As a result, in order to seek out greater affordability, more than half of first-time buyers said they’d leave their current location and move to a market with lower home prices, contributing to what’s referred to in real estate circles as “driving until you qualify.”

Other homeownership hurdles

But rising home prices only tell a portion of the story: while 70% of respondents agree they’re the largest obstacle to getting on the property ladder, the inability to save enough for a down payment also ranks highly on the list of challenges. Continue Reading…

The rise of the Side Hustle: 4 gig ideas for supplementing your income

Posted By Financial Independence Hub | October 18, 2019

By Katie Dunsworth-Reiach

Special to the Financial Independence Hub

For many of us, the cost of calling cities like Toronto and Vancouver home has made a side hustle a true necessity. This is something I embraced after I purchased a home in Vancouver, and quickly felt the weight of a new mortgage and shrinking savings account take effect. Creating an extra income source seemed like a great idea, but the concept of working a second job or picking up a weekend shift also seemed to defeat the purpose of city living. How can you enjoy the best a city has to offer when you have to work around the clock just to afford it?

Enter the sharing economy. From Uber to Airbnb there’s a growing list of stand-out ways to leverage existing assets and skills to make a second income. I began dabbling with the idea when I first started hearing about the sharing economy. I liked the simplicity of signing up and being able to run my side hustle off my phone. The main appeal was that I could set my own hours, rates, and accept or decline the offers that appealed to me. It also exposed me to new people and interests and sometimes barely felt like work. Making extra income actually became a passion.

Five years later, I have multiple side hustles on the go and have been able to increase my savings by more than $20,000 a year: something that has allowed me to pay down my mortgage faster and make room for more travel and retirement investments.

With a simple sign-up, and sometimes a quick background check, most reputable sites will have access to a network of clients, and you can start earning income within a few weeks or less.

My favorite ways side hustle gigs have come from:

1.) Rover.com

Dog walking to dog sitting, this pet care app has uncovered the massive need for loving pet care. Rover gives pet parents and non-pet parents alike the chance to be temporary pet parents, all while earning a little extra cash. Touted as the AirBnB of pet care, Rover matches pet owners with pet sitters and walkers in their area via the app. Sitters create a profile and set their own rate and service offerings, from walking to overnight boarding. Pet parents can pick their ideal sitter and leave reviews post-pet care. Extra income and a play date with a dog is a match made in heaven for many. Considering sixty-five percent of Canadian households own at least one pet and Canada’s pet care industry is worth roughly $7 billion, Rover solves the problems of the pet care demand.

2.) Poshmark

Popular social commerce platform, Poshmark, has 50 million users and recently entered Canada, allowing people to easily sell new and gently used clothing, accessories and home goods. Continue Reading…

Is the political heat melting your investment cool?

Posted By Financial Independence Hub | October 17, 2019

By Steve Lowrie, CFA

Special to the Financial Independence Hub

I’ve said it before. So has American financial commentator Barry Ritholtz. Regardless of your political bent, it’s a bad idea to hitch your investment decisions to whoever is, is not, or is about to be in political power at any given time.

Given the upcoming Canadian election and all the related political storm and fury of late, it’s not impossible that we could end up with a minority government in the next election, with the NDP or Greens having the balance of power. As a side note, residents of British Columbia have been dealing with this scenario for the past couple of years. That said, this outcome is just speculation, and this post is not about how you and I may feel about that situation.

This is about the choices we make as investors. As I said in 2016, and I’ll repeat here:

“Even when political news is strongly felt, there will likely never be a good time to shift your investments — neither in reaction nor as a defense. First, no matter how certain one or another outcome may seem, how the market is going to respond to the news remains essentially unknown. Second, by the time you’ve heard the news, it’s already priced into the market anyway.”

I’ve now been a financial advisor long enough that I’ve heard this refrain many times over: “If ‘X’ is elected I’m moving out of Canada!” Over the years and through multiple conversations, “X” has represented candidates from across the political spectrum.

Ironically, a similar refrain is often heard in the U.S.: “If ‘Y’ is elected, I’m moving to Canada!”Which is why Dimensional Fund Advisors provided us with a telling graphic to illustrate how impotent political parties actually have been at helping or hindering capital markets. Continue Reading…