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).

FP: Navigating ETF Overload through Robo advisors and one-decision asset allocation ETFs

Posted By |

 

FP/Getty Images

My latest Financial Post column has just been published: online and in the Wednesday paper (page FP4): Click on the highlighted headline for the full column: Spoiled for Choice: How investors can navigate the New World of ETF Overload.

While Canadian ETF assets are still about a tenth those of mutual funds, a similar 10-fold disparity in the costs of Exchange Trade Funds versus Canada’s notoriously high mutual fund Management Expense Ratios (MERs) has the ETF industry rapidly playing catch up to the entrenched mutual fund industry.

As one of the ETF experts quoted notes (Dale Roberts, a regular Hub contributor and the blogger behind CutthecrapInvesting), ETF sales have already caught up with mutual funds. And while the early ETF growth was fuelled by Do it Yourself investors buying their own investments (including ETFs) at discount brokerages (with or without the help of fee-based advisors) the next stage of growth is being fuelled by the drive to simplicity and convenience.

Robo advisors came first, with several Canadian operations launching in 2004 or soon thereafter. True, the Robos are slightly more costly than a pure DIY ETF strategy implemented at a discounter, but the extra 0.5% charge (in most cases) is arguably well worth it in terms of hand-holding, asset allocation and automatic rebalancing.

Which is the bigger game changer?

As of 2018, though, investors have been able to get the best of both worlds with the one-decision asset allocation ETFs pioneered by Vanguard Canada, and soon imitated by BMO, iShares and Horizons. Continue Reading…

Adam Smith wins again, as Hedge Fund returns disappoint

Posted By |
Adam Smith: the Father of Economics

By Noah Solomon

Special to the Financial Independence Hub

It has been 243 years since Adam Smith, “The Father of Economics” wrote An Inquiry into the Nature and Causes of the Wealth of Nations. In this magnus opus, Smith introduced the concept of the “invisible hand,” which can be described as an unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically.

The erosion of Hedge Fund returns

At Outcome, one of our favourite sayings is “In the end, Adam Smith always wins.” Whereas the timing of this triumph is uncertain, victory is nonetheless assured. It is not a question of if, but merely one of when.

Smith’s invisible hand has indeed been at work in the hedge fund industry. At the beginning of 2000, there were relatively few hedge funds, and the global hedge fund industry had roughly $300 billion under management. Between 2000 and 2007, the HFRX Global Hedge Fund Index produced annualized returns of 9.75%. Even during the “tech wreck” of 2001-2, when the MSCI All Country World Index of stocks fell 33.1%, hedge funds rose an impressive 13.8%.

As if following Smith’s playbook, this stellar performance attracted a massive influx of assets from investors and prompted the launch of countless new funds. The resulting increase in competition and “crowding” has had a predictable impact on results. From the beginning of 2008 through the end of last August, the HFRX Index declined at an annualized rate of -0.5% and has fallen 5.7% on a cumulative basis. Moreover, hedge funds failed to diversify investors during the financial crisis of 2008, when the HFRX Index plummeted 23.2%.

As always, Adam Smith wins.

Performance & Fees: Fundamentally disconnected

Despite the severe decline in average hedge fund performance, there has not been a proportionate decline in the high fees that they charge investors. Continue Reading…

4 benefits of working with a financial adviser

Posted By |

By Danielle Klassen (Sponsor Content)

Do I hire a financial adviser or should I try building out a financial plan myself?

With the rise of apps and low-cost, online investment products, it can feel easier than ever to take a DIY approach to everything from budgeting, to saving, and investing.

But it becomes more challenging when you want to get beyond the basics. For example, how do I know if I’m saving enough? How can I work towards multiple investing goals at one time? Where can I shave down my expenses? When can I retire? How much should I save for my children’s education?

That’s where a financial adviser comes in. Their job is to see the big picture and help you reach your goals.

Financial advisers provide a slew of benefits that apply to all Canadians, regardless of their net worth. In fact, the stakes can be higher if you’re not rolling in the dough.

WealthBar clients get unlimited access to professional, commission-free advice. Here are the top four advantages of working with a financial adviser:

Get a personalized plan that makes sense for you

The internet is a wonderful resource but it is nearly impossible to find advice that is specific to your situation.

Financial advisers will help you build a personalized plan that accounts for various long and short-term goals. Let’s say your dream is to retire with enough money to travel for four months a year. A financial adviser will help you translate this dream into a financial goal, and will help you build a plan to make it a reality — from budgeting, to saving, and investing — while still accounting for the less romantic aspects of your financial needs.

As your life evolves, your plans will change. For example, maybe you thought you wanted to retire in fifteen years, but now you want to do it in ten years. A financial adviser will help you adjust accordingly, while providing a guiding light on the best way to reach your goals.

Save more money

Half of Canadians say they’ve lost sleep due to financial worries. And the things that keep them up at night? Struggling to save money for short and long-term goals, the increasing cost of living, and unexpected expenses.

The financial planning support that advisers provide can help you become a far better saver. Having a written plan that you review with your adviser on a regular basis (let’s say, yearly) will keep you accountable to your goals. Continue Reading…

What are the unique skills required for investing in real estate?

Posted By |

By Curtis Brown

Special to the Financial Independence Hub

Real estate has been an extensive career opportunity for quite some time now. People have successfully made a living out of buying and selling of properties and houses. If you ask anyone who has been in this field for a long time, they will tell you it is not an easy job. You need to have excellent communication and convincing skills to flourish in the real estate market. But the trick is not just selling.

You should also have the knowledge to assess and know when to buy so you can get maximum profits out of it. Many successful real estate agents have had numerous happy clients over the years. It’s probably a good idea to look at the set of skills they possessed to get an idea about how you should hone and develop your skill in investing in real estate.

Understand market conditions and risks

The market has many facets. It can be very stable at one time and volatile the next moment. However, if you look closely, it follows a trend. You should be able to analyze these trends so you can take advantage of all the uphills and downhills. There is no denying the fact that there is always an element of risk associated with real estate. However, since you have decided to enter the game, you might as well take some. In case it pays off, the profits may be much more than expected.

Discipline has been the most important skill

This applies to almost all career choices, and its implication in real estate is even more significant. Discipline and patience are two virtues that you definitely cannot do without. Once you embark on the path of discipline and follow up with your clients religiously, you will be able to track down and understand potential customers easily.

Network and Management skills

Since real estate is all about communication and buying and selling, one thing of paramount importance here is the kind of network that you have. A lot of marketing in real estate is based on word of mouth, and heavy networking will help to build a good reputation in the market. You should also be able to manage multiple properties at once. This is one strategy that most successful real estate agents apply. They deal with more than one home and keep stacking up their profits one after the other. You will have multiple avenues of income through this method. Continue Reading…

How has the Home Buyers’ plan Changed?

Posted By |

By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

Of the tax breaks and incentives offered to first-time home buyers in Canada, the Home Buyers’ Plan is likely the most utilized; the program, which allows qualifying buyers to pull, tax-free, funds earmarked for retirement from their RRSPs for a home purchase, has steadily grown in popularity since it was first introduced back in 1992.

Eligibility for the program is fairly straightforward; first, the prospective buyer must have some funds saved in an RRSP. They must also be classified as a first-time home buyer, meaning they do not own, or have owned, a principal residence in Canada within the last four years.

The funds must be sheltered within the RRSP account for a minimum of 90 days before they can be withdrawn for the HBP, and the money must be paid back within a 15-year timeline, to kick in the calendar year after the withdrawal is made, in installments of one-fifteenth of the total amount.

While the program is structured to allow home buyers to tap into their retirement funds, it also ensures they pay themselves back; should one of the 15 installments be missed, that portion of the withdrawal funds loses its tax-free status, which the buyer will see reflected in their income tax bill.

However, there are some new changes afoot for the HBP, as announced as part of the federal budget in March, including the program’s first maximum expansion in a decade, and a tweak of the rules to improve eligibility for more home buyers. Let’s take a look at what’s new.

New maximum withdrawal now $35,000

As of March 19, the maximum withdrawal amount for the HBP has been expanded to $35,000, up from $25,000, where it had remained since 2009. This also means that, if a couple is purchasing a home together and both qualify as first-time home buyers, each could theoretically withdraw $35,000, to a combined total of $70,000; an amount that will give buyers greater pull in expensive markets, such as those buying homes for sale in Toronto. Continue Reading…