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).
The Michael James on Money blog was skeptical about Bitcoin and Cryptocurrencies as long ago as 2018, as this post demonstrates. He hasn’t changed his opinion since then.
Deposit Photos
By Michael J. Wiener
Special to Financial Independence Hub
As noted above, Jon Chevreau asked if it was okay to republish this post that I wrote way back in 2018. As little has changed since then, here it is, without further changes or commentary.
The technology used to create Bitcoin comes from the field I used to work in professionally. I’ve followed Bitcoin from its obscure beginnings to its recent bubble-like rise. After fielding so many questions about cryptocurrencies, it’s about time I organized my thoughts about Bitcoin as an investment and as a currency.
To understand Bitcoin, you don’t have to understand the technology behind it. The big problem anyone can see with digital money is that after you spend it you still have a copy of it, so you can spend it again. Much of the effort in creating digital money centers on preventing this double-spending. Bitcoin does this with some clever cryptography and computer protocols called blockchain.
Another feature of Bitcoin is that more money gets created over time. Those who do enough calculation with their computers get more Bitcoins. This is called mining, and is intended to roughly mimic mining for gold. Bitcoin as an investment
Before Bitcoin’s meteoric rise, the few people who’d heard of Bitcoin understood that it is a currency, and is intended to be used like money. Now most people have heard of Bitcoin, and they tend to think of it as an investment. Some in the financial world suggest that cryptocurrencies should be considered an asset class. This is nuts.
It makes no more sense to invest in Bitcoins than it does to invest in Somali shillings, Indian rupees, or British pounds. The typical person should think of these things as currencies, not investments. The fact that the Bitcoin exchange rate is so volatile should make us stay away, not dive in.
Bitcoin as a currency
The digital and cryptographic nature of Bitcoin sets it apart from more familiar currencies like dollars. But this doesn’t really capture the important difference. After all, most transfers of dollars are digital and use cryptography.
Bitcoin isn’t backed by any particular government. No such backing is necessary. The U.S. government backs U.S. dollars, and it can impose rules about how dollars are used. If a bank doesn’t play by the rules, the U.S. government could cut that bank out of the dollar system. There is no easy way for the U.S. government or any government to regulate Bitcoin.
One thing governments do with their currencies is demand that electronic transfers not be anonymous. A certain amount of anonymous transfer is possible with physical cash, but this is limited. For the most part, if governments want to trace large money flows, they can do so. Continue Reading…
Understanding the Importance of the Debt-to-Market-Cap Ratio in Stock Analysis
Image courtesy TSINetwork.ca
When evaluating stocks, it’s crucial to assess their resilience during economic downturns and their potential for future prosperity. While the commonly used debt/equity ratio offers insights into a company’s financial leverage, it fails to capture certain nuances. In this article, we explore the significance of the debt-to-market-cap ratio in stock analysis and why it surpasses the debt/equity ratio.
By understanding the intricacies of this approach, investors can make more informed decisions and increase their chances of identifying companies poised for long-term success.
I was recently asked why I use debt-to-market-cap in my analyses, which is different from the debt/equity ratio seen in most other reports. My answer is two-fold. In analyzing a stock, you need to form an idea of how much it would get hurt in a recession. To put it another way, how likely it is to survive a business slump and go on to prosper when good times return? To do that, you need to look at a number of factors. These include the interest rate on its debt, how sensitive it is to the economic cycle, its pluses and minuses in relation to competitors, its vulnerability to adverse legal and regulatory decisions, its credit history and current credit rating … and so on.
Analyzing Debt-to-Equity Ratio
Many successful investors start by looking at the debt/equity ratio. This ratio comes in several variations, but the basic idea is that you measure a company’s financial leverage by comparing its debt with its shareholders’ equity. You assume an attractive company can earn a higher return on its total capital than the interest rate it pays on the debt portion of its capital. If so, the excess goes to shareholders’ equity, raising the total return to shareholders.
But leverage works both ways. If the total return falls short of the interest costs, the difference comes out of shareholders’ equity. When a company loses money, it still has to pay the interest and one day settle the debt. Generally, it does so by dipping into shareholders’ equity. In extreme cases, losses wipe out shareholders’ equity, and the stock becomes worthless. Then bondholders and lenders take over the assets to try to get back their investment. A high ratio of debt to equity increases the risk that the company (that is, the shareholders’ equity in the company) won’t survive a business slump.
However, this ratio can mislead because it compares a hard number with a soft one. Debt is usually a hard number. Bonds and other loans generally come with fixed interest rates, fixed terms of repayment and so on. Equity numbers are softer or ‘‘fuzzier.’’ They mostly reflect asset values as they appear on the balance sheet (minus debt, of course). But the balance-sheet figures may be misleading. They may be too high, if the company’s assets have shrunk in value since the company acquired them (that is, lost more value than the company’s accounting shows). In that case, the company may need to correct its balance sheet figures by cutting them or “taking a writedown.”
Or the equity value may be too low if the company’s assets have gained value since the company acquired them. This can happen with real estate, patents and other assets (which we refer to as “hidden assets”).Much of a company’s real value may rest in its “goodwill” — its brands, or the reputation and relationship it has built with customers over the years. This value would only appear on the balance sheet if it was bought rather than built up by the company’s operations.
Analyzing Debt-to-Market-Cap
Efficient market theory also leads us to favour debt-to-market-cap over debt-to-equity. This theory says that it’s impossible to beat the market, because the market is efficient and eventually reflects all information, good or bad. This idea had a lot to do with the creation of index funds. Market cap — the value of all shares the company has outstanding — benefits from the “wisdom of crowds.” Continue Reading…
Seeking financial independence, we gathered insights from entrepreneurs and small business owners on their side hustles and how these ventures have shaped their financial journeys.
From joining affiliate programs for extra income to diversifying income with e-books, discover the diverse strategies these twelve professionals have employed to bolster their family’s finances.
Join Affiliate Programs for Extra Income
Balance Side Gigs with Full-Time Work
Invest in Real Estate for Early Retirement
Create Digital Financial Courses
Focus on One Project at a Time
Turn Your Passion into a Full-Time Job
Develop Skills Through Polling Side Hustle
Boost Income with Short-Term Rentals
Leverage Social Media, Newsletters, and Podcasts
Supplement Income with Title Searches
Diversify Income with E-Books
Join Affiliate Programs for Extra Income
I was enrolled in an affiliate marketing program for an AI-based question-generation platform, PrepAI. Since I blog about tools for educating children, I found their product resonated with my goals. I chose to apply for their program and earned some handsome payouts. I tracked my commissions through their dashboard and was confident about it.
These commissions were my savior; they funded the course I was taking and helped save some bucks for my family. If financial independence is what you are craving, join an affiliate program like I did and help your family. –– Tejeswini N, Digital Marketing Intern, DataToBiz
Balance Side Gigs with Full-Time Work
When I first graduated, I struggled to find a full-time job. With a BA in visual arts, my options seemed limited to being a struggling artist, working as regular staff at local art galleries, or trying to get into art auctions, which didn’t align with my passion. Fortunately, I had been dancing since the end of high school, and I had developed my skills enough to pick up side gigs, including teaching dance, choreographing, and working as a professional backup dancer for different shows.
By applying for any dance-related opportunities that came my way, I started earning around HKD 30,000 per month, which was triple what I would have earned as a regular office worker. During this time, my father was bedridden, and without this side hustle, I wouldn’t have been able to support myself or later save up enough money to also take care of my widowed mother.
However, relying solely on side hustles wouldn’t have helped me achieve financial stability. I found a balance by having a mixture of both a full-time job that paid less but offered a better future career path, and investing in side gigs that provided extra income and served as backup plans if I ever found myself without a 9-to-5 job.
This approach did take a toll on my work-life balance, but after seven years, my full-time job paved the way for me to gain enough experience and secure a much better salary. With that, I had the option to let go of my side gigs and eventually leverage my diverse experiences to start my own business, where I now work for myself. — Joyce Tsang, Content Marketer and Founder, Joyce Tsang Content Marketing
Invest in Real Estate for Early Retirement
I’m a pharmacist by profession, but I started investing in real estate as a side hustle in 2016. Specifically, I invest in student housing, which means I buy properties in college towns and convert as many rooms as possible into bedrooms to maximize my income.
Using this strategy, I’ve been reinvesting my returns and buying an additional rental property every year. And now, I’ve been able to retire in my early thirties thanks to real estate. It’s given me complete financial independence, and that’s why I started a real estate coaching business to help others do the same. — Ryan Chaw, Founder and Real Estate Investor, Newbie Real Estate Investing
Create Digital Financial Courses
I delved into creating digital financial courses, leveraging my expertise. This side gig significantly bolstered our family’s income, accelerating our path to financial freedom. Crafting courses allowed for flexible hours and reached a broad audience, bringing in a steady stream of passive income.
This venture not only diversified our earnings but also empowered others to enhance their financial literacy. The impact was profound, creating both financial stability and a sense of fulfillment in aiding others on their financial journeys. — Danielle Roberts, Co Founder, Boomer Benefits
Focus on One Project at a Time
Over the past couple of years, I have tried over 10 different side hustles and online business models. The biggest takeaway? Avoid that shiny-object syndrome and don’t spread yourself too thin. I was juggling so much that I hardly had any time left for my family or a social life. It felt like I was constantly running on a treadmill—always working, but not really getting anywhere.
The real kicker was, despite all the hustle, I felt like I wasn’t doing enough. It was a fast track to burnout, and at the end of the day, I didn’t have much to show for it. At some point, I had to put a stop to it and put most of my side projects on hold to stay sane.
Now, I focus on one thing at a time. And let me tell you, it’s amazing how much you can achieve when you pour 100% of your attention and energy into a single project. In the last several months, this approach has made more difference in my family’s financial success than everything I did in the previous three years. —Juliet Dreamhunter, Founder, Juliety.
Turn your Passion into a Full-Time Job
After graduating from college, I started working as a fitness writer and made people aware of yoga through my writing. Blogging was something that I really loved from the beginning, and it turned into my side hustle.
As for my journey, Yogi Times is proof of how my interest turned into a full-time job and made me an entrepreneur. If it weren’t for that blogging, I wouldn’t have realized how much this field makes me happy. Through Yogi Times, I get to teach others about yoga, publish my own work, and create a positive community for fitness enthusiasts. No matter what age they are, this community is for everyone. — Jean Christophe Gabler, Founder, Yogi Times
Develop Skills through Polling Side Hustle
My first steps toward financial independence began with a career as a pollster, conducting online, telephone, and in-person surveys. Besides financial support, this side hustle has been instrumental in developing my professional path, which has oscillated around HR, public relations, communication, and content creation. Continue Reading…
Welcome to another Then and Now post, a continuation of my series where I revisit some older blog posts and either rip them to shreds (because my thinking has totally changed on such subjects) or I’ll confirm my position on some subjects including some specific stock or ETF investments.
Instead, I’ll share my investing history with a low-cost tech ETF: QQQ.
You can read about my previous Then and Now posts on certain stocks (good and bad!) at the end of this post.
Then – QQQ
Passionate readers and subscribers of this site will know, I’m a HUGE fan of not just dividend-paying stocks but low-cost ETFs as well.
The reason for owning some ETFs beyond some dividend growth stocks is simple: I cannot predict which stocks will truly succeed long-term.
So, owning low-cost ETFs is a hedge against how I’ve largely unbundled my Canadian ETF for income, beyond holding a few U.S. stocks for mostly portfolio defence.
I mentioned in my reply that was like splitting hairs given both low-cost U.S. ETFs have and will likely continue to deliver very similar, strong returns.
“Whether you invest in U.S.-listed VTI, ITOT, SPY, IVV or another low-cost U.S. fund that tracks the U.S. S&P 500 or the U.S. total market, I think you’re picking a winning long-term equity product for your portfolio.”
I’ve been right, at least historically speaking.
Source: Portfolio Visualizer.
But even before that post, I invested in a small amount low-cost tech ETF QQQ – not because I didn’t think VTI, ITOT or other S&P 500 ETFs were bad choices, not at all, just that I believed at the time Invesco’s QQQ could perform better.
“Invesco QQQ ETF gives you access to a diverse group of cutting-edge Nasdaq-100 companies — all in one fund.” – Invesco
Since launch in 1999 (gosh, I wish I owned it then!) QQQ has demonstrated a history of outperformance, typically beating the S&P 500 Index. Continue Reading…
With an initial look, these split-shares are extremely enticing and attractive due to the very high yields. Are there risks associated with these split-share corporations? Should one build an investment portfolio with them to generate dividend income?
List of Canadian split-shares
Before we dive deeper into the details, here is a list of available Canadian split shares I can find, the share price, and the yield percentage. CanadianPreferredShares.ca keeps an updated list of all Canadian split-share corporations issued in the Canadian market.
As you can see from the table, most of these split-shares provide a 10% or higher distribution yield. This is extremely attractive if you’re seeking regular investment income.
You will also notice that some split-shares have suspended their distributions. This is due to how split-shares are structured, distributions will only get paid out if the Unit Net Asset Value (NAV) is over a certain threshold. More on that later …
What are split-shares?
So what are split-shares or split corps? Unfortunately, not many investors are familiar with them, due to how they are set up. I certainly had to do a bit of research to understand the details.
First, a split-share corporation is set up by investing in a selection of stocks, like banks, utilities, pharmaceuticals, pipelines, etc. For example, Dividend 15 Split Corp. (DFN.TO) invests in 15 stocks: Bank of Montreal, Bank of Nova Scotia, BCE, CI Financial, CIBC, Enbridge, Manulife, National Bank, Royal Bank, Sun Life Financial, Telus, Thomson Reuters, TD, TransAlta, and TC Energy.
Within the split-share corporations, two classes of shares are available: Preferred Shares and Class A or capital shares. Investors can choose to hold both types of shares or just one. These two different kinds of shares are traded on the stock exchanges and can be purchased from online brokers like Questrade or National Bank Discount Brokerage.
Preferred Shares are designed for the more conservative investors who seek regular monthly distributions. Preferred shares typically have a finite term (e.g. 5 years but usually get renewed) and have a claim on fund distributions first. No capital gains or losses from the underlying holdings will impact preferred shares. In other words, the preferred shares are structured like a fixed-income vehicle.
Similar to how other preferred share stocks work, while distributions are quite safe, there’s usually a limited capital appreciation potential. There’s no management expense ratio (MER) associated with these split share preferred shares as fees are paid by the Class A shares. Continue Reading…
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