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).

Suze Orman and the FIRE movement

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Photo by QuinceMedia on Pixabay

By Aaron Burdick

Special to the Financial Independence Hub

In a recent interview, Suze Orman provided her opinion about the FIRE (Financially Independent, Retire Early) movement. However, in doing the social media interview, her words were probably taken out of context, and triggered a viral reaction. Everything from Orman being a “shill for the financial industry” to “she doesn’t really want people to be financially independent at all” was thrown around. No surprise, Orman had to step out quickly and put clarity into her words.

First off, Suze Orman makes a point that she’s been advising people to be financially solvent and independent for decades, so she has no outright gut opposition to the idea. Period. But she does add that there should be a balance between spending and saving as well, which is an entirely different idea. Frankly, it’s more about balancing our satisfaction interests versus what we really need to survive and live comfortably. But where the heartburn really kicks in for Orman is on the topic of retiring early. For her, it’s a bit like quitting your job early but having no idea how to pay for health insurance until you reach the age to get Medicare, avoidable and dumb.

What is the Definition of Retirement?

So, it comes down to definitions first. If we are talking about true retirement, for Orman that means stopping working for income altogether. There is no odd job, or a part-time job, or a different job operating a lathe machine; it’s just not working at all for any profit. Second, retirement under the FIRE definition could be 55, but it could be as early as 30 or 40 as well. For the financial planner that Suze is, mathematically, that was pretty much impossible unless one was a millionaire or won the lottery. Mainly, the problem has to do with the fact that people are living really long, and that translates to tens of thousands of dollars needed annually to survive on. Quitting work at 40 or even 50 is just ludicrous.

FIRE’s Definition of Retirement

As it turns out, however, FIRE’s definition of retirement isn’t a complete cessation of retirement. Instead, it involves switching from what you have to do for a paycheck to what you want to do and still earn an income doing it. No surprise, without that clarification, Orman’s original response was not just “no,” but “hell no!” And that caused a kerfuffle on the Internet. In fact, the revised definition is entirely inline with Suze Orman’s general advice direction, pushing people to find what they love doing, but still, earn an income doing it. Some call it FIRE, and Orman calls it Living on Your Own Terms.

So there is commonality with the clarified version of FIRE and Orman’s advice categories. The detail then comes into the “how,” the method used to get from what you have to do for a paycheck to what you want to do. FIRE doesn’t necessarily detail these steps; that’s left up to the user to figure out. This is where Orman finds a gap in the philosophy.

Orman’s Take on Retirement

For Orman, retirement and individual financial independence aren’t about making enough money to quit a job. It’s about keeping stable while finding a life direction more in line with your interests, goals, wants, and happiness. Just getting to retire early with a lump of money isn’t going to translate to happiness per se. And, going back to her financial math, it’s a high risk for even more problems and unhappiness. So, Orman’s not against FIRE per se; but she has an issue with its lack of detail and in that respect, being misleading.


Aaron Burdick is a blogger and personal finance enthusiast with slight “addiction” of planning and organizing whether it’s budget, business or just life in general. Finances, real estate, budgeting and new technological solutions are not the only talking points, that he has his heart set on. Passionate about life. he studies and writes about environmental changes, human rights and quality of life. He is also the proud owner of a Golden Retriever. When he’s not writing articles he’s with his best friend playing fetch or cycling around the streets of Louisville. 

Bucking the public’s confirmation bias on Chinese stocks

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By Jeff Weniger, CFA, WisdomTree Investments

Special to the Financial Independence Hub

Does the “global trade war,” quotation marks intentional, spell doom? It depends on your silo. 

The 2009 American Recovery and Reinvestment Act poured some C$1.03 trillion of stimulus into the system, while China’s coincident crisis-era package dumped a C$768 billion package on top.1Central banks added trillions in bond purchases for the trifecta.

But some people may have missed the boat. Who? Those who couldn’t get past their ideological differences with the last U.S. president, who made some of them think the global financial crisis would lead to a perpetual depression. Distorted reality costs money, and what happened with Obama’s detractors is now happening in the Trump administration. Some proportion of the public, including many on Wall and Bay Streets, are letting their political views with respect to President Trump get in the way of arithmetic.

That can create opportunity for the sober observer.

What is one mistake investors are making? Prognosticating “global trade war” doom.

Global Trade War?

2018 has witnessed nothing but improvement in relations between China and Japan, nothing but improvement in relations between Japan and Europe and, arguably, nothing but improvement in relations between the U.S. and both Mexico and Canada, at least compared to this past summer.

Some global trade war this is, with major foreign leaders jumping over each other to prove their free market bona fides.

“We must promote trade and investment, liberalization and facilitation through opening up—and say no to protectionism.”— Chinese President Xi Jinping, 2017

“It is also quite vital that we keep on raising high the flag of free trade.” — Japanese Prime Minister Shinzo Abe, 2017

“We believe multilateral cooperation can add value for everyone, and that’s why we’re advocating global trade that is as free as possible and which is based on common rules. ”— German Chancellor Angela Merkel, 2018

The truth is that Trump is calculating that Americans have finally hit a wall on the status quo with respect to China. Regular people on the street may not know the specific trade numbers, but they know where the knock-off purses come from, they know now about wanton intellectual property theft and, most disconcertingly, cyberwarfare.

In reframing the argument about global trade, does anyone care that Japan, China and South Korea are sitting at the table with one another for trilateral trade talks?2How about the big August trade deal between Japan and the EU? Talk about large economies. 

While market angst is focused on the Trump administration’s “global trade war,” most of the planet is actively making deals, in direct contrast to the meme of global internecine tariff warfare.

And China’s Scythe on Taxes

While markets react to headlines, China’s fiscal stimulus continues apace. Some investors appear to be missing the good in hoping for Trump to prove an economic failure. One such “good” is the total revolution happening in China’s personal income tax code, shockingly ignored by so many. Figure 1 shows the C$565 tax cut that the average white-collar Chinese worker, earning C$17,689 a year, is set to witness. There’s more too if we count mortgage, student loan and child deductions (figure 1).3 

Figure 1: Proposed China Personal Income Tax Example, Average White-Collar Worker

Proposed China Personal Income Tax Example

That comes on the heels of this spring’s 1% cut in value-added tax (VAT) rates. Combined with income tax relief, we count C$135 billion in cuts this fiscal year alone (figure 2).4

Figure 2: VAT + Personal Income Tax Cuts, 2018 Amount

VAT Personal Income Tax Cuts 2018 Amount

Granted, there are offsets. For example, Beijing is also vaguely promising reductions in social insurance premiums, but that may be more than offset by the tax authority’s ratcheting up of collections efforts this year. The result could be a net tax hike on this front.

Nevertheless, figure 3 shows the decade-long effect of Chinese President Xi Jinping’s tax cuts on the VAT and personal income fronts. At slow-to-fast growth rates, the cumulative 10-year estimate is C$1.35 trillion to C$2.66 trillion, straddling both sides of Trump’s C$1.97tn package that sent stocks higher in 2017.

Figure 3: Cumulative 10-Year Total, Xi Tax Cuts (Using WisdomTree’s C$135bn Calculation for 2018)

Cumulative 10 Year Total Xi Tax Cuts

Meanwhile, we present figure 4; China’s exports to the U.S. have been shooting higher in a largely uninterrupted fashion for most of this century.

Figure 4: Annual USD Chinese Exports to the U.S.

Annual USD Chinese Exports to the US

The Play

Our TSX-listed dedicated China strategy is the WisdomTree ICBCCS S&P China 500 Index ETF (CHNA.B). It hits broad China with a 9+% earnings yield and tracks China’s S&P 500.5Because it is so broad, it can be used as a single line item for a portfolio’s entire Chinese equity exposure. 

While the mass of investors focus on “global trade wars,” few observers are noting Chinese fiscal expansion or, for that matter, big trade deals being signed right now. There’s your edge, contrarian reader.

1Sources: Congressional Budget Office, Publication 49958, Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output in 2014. Chinese stimulus data by The Economist, China Seeks Stimulation, 11/10/08.2Source: Laura Zhou, “China, Japan and South Korea Aim to Speed Up Talks on Free-Trade Agreement to Counter U.S. Tariffs,” South China Morning Post, 9/22/18.
3Average white-collar worker income calculated by Zhaopin Ltd., a career platform similar to Monster.com, as of end-2017. Tax cut calculations by WisdomTree, using the PBoC’s tax proposal that is likely to become law in October.
4See source data beneath Figure 1.
5Sources: Bloomberg, WisdomTree, as of 10/24/18.

Jeff Weniger, CFA serves as Asset Allocation Strategist at WisdomTree. Jeff has a background in fundamental, economic and behavioral analysis for strategic and tactical asset allocation. Prior to joining WisdomTree, he was Director, Senior Strategist with BMO from 2006 to 2017, serving on the Asset Allocation Committee and co-managing the firm’s ETF model portfolios. Jeff has a B.S. in Finance from the University of Florida and an MBA from Notre Dame. He is a CFA charter holder and an active member of the CFA Society of Chicago and the CFA Institute since 2006. He has appeared in various financial publications such as Barron’s and the Wall Street Journal and makes regular appearances on Canada’s Business News Network (BNN) and Wharton Business Radio.

 Important Risks Related to this Article

There are risks associated with investing, including possible loss of principal. Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. The Fund focuses its investments in China, including A-shares, which include risk of the RQFII regime and Stock Connect program, thereby increasing the impact of events and developments associated with the region, which can adversely affect performance. Investments in emerging or offshore markets are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation and intervention or political developments. The Fund’s exposure to certain sectors may increases its vulnerability to any single economic or regulatory development related to such sector. As this Fund can have a high concentration in some issuers, the Fund can be adversely impacted by changes affecting those issuers. The Fund will be required to include cash as part of its redemption proceeds which introduces additional risks, particularly due to the potential volatility in the Chinese market and market closures. The Fund invests in the securities included in, or representative of, its index regardless of their investment merit and the Fund does not attempt to outperform its index or take defensive positions in declining markets. Due to the investment strategy of this Fund, it may make higher capital gain distributions than other ETFs. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.

How can you create a supplementary source of income?

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By Beth Morris

(Sponsored Content) 

Is your job failing to provide you with money to spend on the things that you always wanted to have for yourself? Since you most likely have free time other than the typical eight hours of sleep per day, you should use it to earn additional income.

If you need further convincing as to why you should seek to build a source of income aside from the one that your current job provides, you should consider talking to a financial advisor or planner like those from Capstone who can walk you through the nitty-gritty of how to plan out your finances going forward. But if you already want to get straight to it, here’s how you can create a supplementary source of income:

Build an online store

Shopping online has become a common activity for some, especially those with tons of money to spend but don’t want the inconvenience of driving into town. However, instead of settling at becoming an online shopper yourself, why not try selling products via the Internet?

You might want to consider registering a seller account first at an e-commerce platform such as Amazon or eBay. You can set up shop in your chosen e-commerce platform in only a matter of minutes, thus allowing you to focus more on spreading the word about your online store and targeting potential buyers.

Once you’ve established yourself as an online seller, you can then consider creating a dedicated website for your onlinestore where you can have fuller control of all the profit generated by your side business. Just remember to retain your day job for the time being until you can already live comfortably using the earnings that your online store receives.

Work as a Freelance Writer

You may have a knack for writing about anything under the sun, but your current job might find you doing anything but that. However, since you don’t spend your entire day working at your job, you can use your free time in an income-generating way by rekindling your passion for writing and finding work as a freelance writer.

Website owners and bloggers who find very little time to write content – especially if they have a hectic schedule – often hire freelance writers and pay them to create articles and posts. Once you become a freelance writer for a website owner or blogger, your research skills will be put to the test, thus making you learn more about specific topics in a more active way compared to when you stumble upon a random article on the Internet and read it in your spare time. Best of all, you can work anytime you want as a freelance writer. Continue Reading…

How to get the better of the big Canadian banks

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By Larry Bates

Special to the Financial Independence Hub

The big Canadian banks, and by extension the entire Canadian financial industry, occupy a position of paternalistic authority that too many individual investors respect unquestioningly, and even appreciate to some extent. The industry brilliantly capitalizes on a combination of poor understanding of fees, deep loyalty, and misplaced trust by charging Canadians the highest mutual fund fees in the world. This leaves most Canadian retirement investors with 100% of the market risk but only about 50% of market returns.

The impact of these high (and often unseen) investment fees on Canadian retirement accounts is more than a consumer issue, it is a major social issue of our time.

Government pensions will not be nearly enough to provide a satisfactory retirement lifestyle for most Canadians, and guaranteed employer pensions are rapidly becoming a thing of the past. In order to live well in retirement, you now likely need to build significant savings and make those savings grow through investment. So,while previous generations of Canadians with guaranteed pensions could casually observe the markets from the sidelines, most of us today must participate directly in the markets to secure a comfortable retirement.

In other words, you, and only you, have the burden of responsibility to get investing right. But the structure and practices of the investment industry continue to conspire against the ability of the average investor to succeed, to maximize that retirement nest egg. This compromises not only the financial well-being of individual Canadians, but also the health of our retirement system and of our society as a whole.

But there is good news. There are a growing number of very efficient, low-cost investment products such as index ETFs and services such as online discount brokers and “robo-advisors” that enable Canadians to keep a much larger share of their investment returns where they belong … in their retirement accounts. And these lower-cost products and services are offered by the big banks as well as several independent institutions. But you need to know the basics in order to take advantage of these opportunities and build bigger nest eggs. Continue Reading…

The hidden dangers of online trading

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It doesn’t get as much play in the media as it did a decade ago, but even in the volatile market of 2018, online trading carries hidden dangers that aren’t always evident at first.

The main risk comes from the fact that online trading may seem deceptively easy. The lower costs and higher speeds of online trading can lead otherwise conservative investors to trade too frequently. That can lead you to sell your best picks when they are just getting started.

The apparent ease of online trading may even prompt conservative investors to take up short-term trading or day trading. That’s just another danger of trading stocks online: there’s a large random element in short-term stock-price fluctuations that you just can’t get away from.

Lower costs attractive, but Investment Quality makes money

This random element can be profitable for short periods. But you can’t reliably profit from it over the long term. In fact, most short-term traders wind up losing money. By the time their beginners’ luck fades, many are trading in dangerously large quantities.

Frequent trading can also lead you to buy lower-quality, thinly traded stocks. The danger arises from the fact that the bid and ask spreads of many of these investments can be so wide that the share price will have to go up significantly before you’ll even begin to make money on a sale.

You can make trades quickly in online trading, and that cuts your commission costs. However, for successful investors, this is a bonus, not the object of trading stocks.

It is far more important to focus on high-quality, well-established companies and how they fit in your portfolio. The longer you hold these stocks, the greater the chance that your profits will improve, as well.

Here are two other dangers to avoid in online trading. Both can seriously hurt your long-term returns:

1.) Practice accounts can breed false confidence

Some investors are nervous about trading stocks online. So, instead of jumping right in, they start off by using the “practice accounts” or “demo accounts” that the online brokerage industry initiated several years ago. Practice accounts are supposed to be identical to real accounts in all but one respect: you buy stocks in them with imaginary or “play” money, rather than the real thing.

The brokerage industry says this gives would-be traders a free opportunity to learn how to trade online without risking any money. Using an online broker’s practice account, you can learn online trading essentials, such as how to enter an order to sell or buy stocks; how to double-check your order before submitting it, so you avoid obvious but common mistakes, like buying 10,000 shares when you only meant to buy 1,000; and so on. The big risk with practice accounts is that you’ll try out a risky and ultimately unwinnable investment approach, like day trading or options trading, and hit a lucky streak. This could embolden you to put serious money at risk just when your results are about to regress to the mean. This will deliver losses instead of profits.

2.) Automated stock-picking systems can backfire

Some investors who trade stocks online use automated stock-picking systems to help them make investment decisions. These systems are typically marketed with impressive-looking performance records designed to make investors think they are sure to make guaranteed profits. However, those records are typically derived by “back-testing” the program against past data. In other words, the promoters go back through old trading records and see what would have worked in the past.

Automated stock-picking systems essentially do two things: First, they narrow down the data you use when you make investment decisions. Second, they apply a fixed rule, or rules, to draw a conclusion or an investment decision from that selection of data. Unfortunately, the market’s key concerns continually change. Today’s good investments can turn into tomorrow’s dead ends. For a time, these systems seem to work, but that’s usually coincidental. If the market is going up and the system tells you to buy volatile investments, it automatically generates profitable trades. But they can just as quickly turn around and begin pumping out unprofitable trades. Often this happens just when they can do the most damage to the investor relying on the system.

Bonus Tip: Building a “Buy and watch closely” portfolio

Of course, there are a variety of ways to build an investment portfolio. Some work better than others. But our Buy and watch closely approach has done well for our portfolio management clients over the past few decades. We recommend this approach for our readers as well.

We start by applying our three-part Successful Investor rule for portfolio construction:

  1. Invest mainly in high-quality, well-established companies, with a history of earnings if not dividends;
  2. Diversify across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
  3. Downplay or stay out of stocks that are in the broker/media limelight. This limelight raises investor expectations to dangerous levels. When stocks fail to live up to those heightened expectations, share-price slumps can be swift and brutal.

We advise selling particular stocks when we feel the situation has changed and they no longer qualify as high-quality investments. We also sell if we decide that a stock isn’t as high-quality or well-established as it needs to be, to cope with the challenges it faces. Of course, many of our sales are due to a successful takeover of a company’s stock, which generally results in a major profit for our clients.

Pat McKeough has been one of Canada’s most respected investment advisors for over three decades. He is the founder and senior editor of TSI Network and the founder of Successful Investor Wealth Management. He is also the author of several acclaimed investment books. This article was originally published in 2012 and is regularly updated, most recently on July 9, 2018. It is republished on the Hub with permission.