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).
Harvest ETFs this week announced its new Harvest Premium Yield Treasury ETF, now available.
By Michael Kovacs, President & CEO of Harvest ETFs
(Sponsor Blog)
Canadian investors have been forced to adapt to aggressive interest rate hikes from the Bank of Canada. This was preceded by a prolonged period of low interest rates that continued since the 2007-2008 Financial Crisis.
Some experts and analysts are projecting that interest rates are at or near the peak of this tightening cycle. In this environment, an optimal investment strategy factors in high interest rates while preparing for the eventual downward move that many analysts expect in 2024 or later. When the period of high interest rates subsides, there may be great potential for capital appreciation and income generation with an investment strategy that captures those benefits/opportunities. That is where the brand new HPYT ETF comes into play!
What is it?
HPYT is an ETF that holds several long-duration US Treasury ETFs and actively manages a covered call write position on those ETFs to generate an attractive monthly income. It has an approximate yield of 15%, representing the highest fixed-income yield in Canada. The approximate yield is an annualized amount comprised of 12 unchanged monthly distributions (the announced distribution of 0.15 cents on Sept. 28 multiplied by 12) as a percentage of the opening market price of $12 on September 28, 2023.Continue Reading…
The column is a frank confession of some rather painful investment losses sustained the last three years, mostly from recent IPOs or SPACs.
When I asked myself where some of these investment “ideas” came from I realized that almost all of them came from investment newsletters published by various American stock pundits, self-proclaimed or otherwise, including two I mention below.
The worst of these is supposed EV play Lordstown [RIDE], down in my account an astounding 100%, following its recent bankruptcy. And no, I did not renew the newsletter responsible, which I have been persuaded I should not divulge here.
Credit another Letter for tipping me to such losers as Matterport (MTTR/Naqsdaq: down 83% after its recommendation), Zoom (ZM), down 80% and Coinbase (COIN), down a whopping 78%. I won’t name his newsletter as it doesn’t matter: the culprit responsible left some time in 2022, his patience exhausted long before the “Hold with strong hands” patience he recommended for his hapless readers.
When I further asked myself how it came about that I subscribed to these newsletters in the first place, I realized that well more than half were the result of email pitches and — typically — a US$49 per year offer. You know the drill: get 3 or 4 “special reports” that divulge the ticker symbols of these moonshots that are as apt to crash your portfolio as they are the hoped-for 10-baggers.
From a risk management perspective, I tend to invest far less in such speculations (for that’s what they are), compared to blue-chip individual stocks, broadly based ETFs or GICs, but those $1,000 or $1,500 per spec losses do add up. The MoneySense column goes into some detail on the hazards of holding such losers in registered accounts, versus tax-loss selling in taxable ones. [The tax tail often waves the investment dog in both directions.}
Stop biting on initial pitches, then stop renewing
So job one is to stop clicking on those email pitches. Second, do not renew them when they come up for it, typically after a year. Beware automatic renewals: you may have to contact the publishers directly to cancel.
A few exceptions
I don’t want to throw out the baby with the bathwater and it’s only fair to say there may be the odd exception, particularly here in conservative Canada. I have long been on the record for reading and sometimes acting on the recommendations of Patrick McKeough of The Successful Investor and his stable of newsletters like Wall Street Forecaster and Canadian Wealth Advisor. Most of Patrick’s stock picks are well-known blue chips. When he does go further afield with foreigner domestic juniors he identifies them as being riskier and suitable mostly for “aggressive” investors. Fair enough! Incidentally, Patrick kindly allows us to run an article here on the Hub roughly on a monthly basis: you can do worse than act on recommendations like this recent instalment: Use these successful investment strategies for your portfolio success.
I also respect the work of fellow Canadian Gordon Pape, who is a regular writer for the Globe & Mail. For the most part I find the Motley Fool to be decent, although I tend to focus on their free audio podcasts rather than their paid-for newsletters. At one point, in fact, I wrote for them.
Minimize media market noise
The MoneySense column also mentions some related topics, like monitoring cable TV all-news channels that also run stock quotes. We’ve looked before on the Hub about steps to take to avoid investment noise and the Fear of Missing Out (aka FOMO: currently, it’s all about AI). CFA and investment advisor Steve Lowrie, also a Hub contributor, and one who I initially met through the aforementioned Pat McKeough, captured this nicely in this blog: SPACs, NFTs and another Tech-inspired Silly Season. Continue Reading…
The need for income from investments has become more important than ever given an aging population, higher inflation, and cost of living. There are many ways to earn income from investments, but two distinct pathways emerge: the well-trodden path of traditional income and the emerging use of covered call strategies. Let’s dive a bit deeper into the two methods.
Covered Call Strategy: A Paradigm Shift in Income Generation
The covered call strategy is an investment strategy that involves the purchase of an underlying asset, such as a stock, and the sale of a call option on that same asset. By selling the call option, the investor agrees to sell the underlying asset at the strike price of the option if the option is exercised. Essentially, they involve holding a portfolio of stocks while simultaneously selling call options on those holdings. This approach creates a dual stream of income: dividends from the underlying stocks and premiums collected from the sale of call options.
Balancing Act: Income vs. Capital Appreciation
The allure of the covered call strategy lies in its potential to provide a higher yield compared to traditional income investments. Furthermore, the yield generated by writing call options is taxed more preferably under capital gains accounts while interest income from fixed-income products (such as GICs) is taxed under income.
Traditional Income Investments: The Time-Tested Approach
Classic Income Investments
By contrast, traditional income investments have been around for a very long time and can be reliable sources of income. This category includes bonds, GICs, and dividend-paying stocks. Bonds provide regular interest payments, GICs [Guaranteed Income Certificates] offer fixed interest rates, and dividend stocks distribute periodic income.
Stability and Predictability
The hallmark of traditional income investments is their stability. Bond interest payments, GICs, and dividend distributions are relatively predictable. This predictability appeals to investors who prioritize a steady income stream and wish to avoid the potentially higher volatility associated with other investment options.
Comparing Covered Call Strategies and Traditional Income Investments
Yield Potential
Covered Call strategies typically offer a higher yield due to the combination of dividends and option premiums. This can be especially attractive for income-focused investors seeking higher returns. By contrast, traditional income investments tend to provide more modest but steady income streams. Continue Reading…
To shed light on effective wealth-building strategies, we’ve gathered insights from nine experts in the field, including investment specialists, financial advisors, and more.
From the importance of diversifying your portfolio and investing in yourself to the consistent investment in stock indices, these professionals share their top investment opportunities and asset classes that have proven particularly effective in securing financial independence.
Diversify Your Portfolio and Invest in Yourself
Prioritize Exchange Traded Funds (EFTs)
Look into Home Ownership and 401(k) Investments
Make Systematic Progress Across Asset Classes
Generate Passive Income with a Niche Website
Build Wealth through Real Estate
Focus on Healthcare and Nutraceuticals
Seek Rental Property Investments
Be Consistent with Investment in Stock Indices
Diversify your Portfolio and Invest in Yourself
One investment opportunity that has proven particularly effective in building and securing financial independence is a diversified portfolio that includes a mix of equity, bonds, and alternative assets.
This strategy allows for exposure to different asset classes, mitigating risk while aiming for growth. Equities provide the potential for high returns, bonds offer stability and income, and alternative assets such as real estate, commodities, or private equity can add further diversification and potentially enhance returns.
However, it’s essential to emphasize that investing in oneself has been the best investment of all. Personal and professional development, education, and acquiring new skills have consistently yielded substantial returns over time. These investments enhance earning potential, open up new opportunities, and empower individuals to adapt to changing circumstances. — Ahmed Henane, Investment Specialist and Financial Advisor, Ameriprise Financial
Prioritize Exchange Traded Funds (EFTs)
The equity market is the single greatest wealth creator for investors. If someone has 10 years or more as their time horizon for investing, then an equity growth mutual fund or ETF (Exchange Traded Fund) is highly recommended to build wealth.
ETFs are very similar to mutual funds. ETFs typically represent a basket of securities known as pooled investment vehicles and trade on a stock exchange like individual stocks. A growth ETF is a diversified portfolio of stocks that has capital appreciation as its primary goal, with little or no dividends.
One such investment would be the Vanguard Growth ETF (VUG/NYSE Area). This ETF is linked to the MSCI US Prime Market Growth Index, which offers exposure to large-cap companies within the growth sector of the U.S. equity market. Investors with a longer-term horizon ought to consider the importance of growth stocks and the diversification benefits they can add to any well-balanced portfolio. — Scott Krase, Wealth Manager, Connor & Gallagher OneSource
Look into Home Ownership and 401(k) Investments
There isn’t any one asset class or investment opportunity I’d recommend over the other for the general populace. Those types of financial decisions are circumstantial and based on the needs of the client.
Nonetheless, the two ways to “Build Wealth for Dummies” would be to purchase your home and invest in your 401(k). From a behavioral-finance perspective, the automatic contributions to these two vehicles have, more often than not, created better outcomes for clients. — Rush Imhotep, Financial Advisor, Northwestern Mutual Goodwin, Wright
Make Systematic Progress across Asset Classes
A systematic progression across multiple asset classes has been successful in developing wealth and financial freedom. A cash-generating firm provides a stable financial basis for future projects.
Real estate investing offers passive income and property appreciation, boosting financial security. Diversifying the portfolio with equities and other assets follows, harnessing the potential for exponential growth and mitigating risk through a well-balanced mix. However, amidst this multifaceted approach, it is crucial not to overlook the most pivotal investment: oneself.
As Warren Buffett wisely advised, “Be fearful when others are greedy and be greedy only when others are fearful.” Investing in self-improvement, education, and personal development enhances decision-making acumen and emotional resilience, providing the intellectual foundation to navigate the ever-evolving landscape of wealth accumulation. — Galib A. Galib, Principal Investment Analyst
Generate Passive Income with a Niche Website
A few years back, an affiliate website was launched in the personal finance niche. The payoff? Consistent ad revenue and affiliate commissions with minimal oversight, essentially becoming a self-sustaining income stream.
Running a website is not as time-consuming as commonly believed. After the initial setup and content, it just needs occasional updates. Soon enough, it turned into a low-maintenance income source. Continue Reading…
By Aaron Hector, Private Wealth Advisor, CWB Wealth
Special to Financial Independence Hub
Back-to-school season can raise tough conversations about financial responsibility. For many, it causes students and families to re-evaluate both short and long-term goals in the pursuit of a post-secondary education.
The good news is that creating a plan to manage school expenses doesn’t have to be difficult: it just requires students and families to look ahead and be realistic with budget, goals and expectations. In other words, this isn’t a process to “wing it.” Using a scenario in which you have a student enrolled or planning to enrol in a post-secondary program, here are five tips that will can help keep your finances on track this year.
Work smarter, not harder: Develop your school savings plan
It’s never too early to start saving for your child’s education. If you are a first-time education saver and starting to put money away, be sure to learn about opportunities that fit your needs and goals: whether that is saving smaller amounts over longer periods of time or leveraging options like a Tax-Free Savings Account (TFSA) or a Registered education savings plan (RESP).
For example, all new parents should start a RESP, which is a tax-sheltered investment vehicle that provides access to government grants which provide a 20% match on your contributions (up to certain limits). The first step is to speak to your advisor to learn about your options. The options are vast and more flexible than most people assume!
Leverage your resources: find out how your bank and school can help you save
To ease the burden of pricey tuition, it pays to do a bit of research on the programs, grants, or scholarships you or your child might be eligible for through your financial and post-secondary institution. The resources are out there, but it can be tough to know all that exists or how to apply for them. A good advisor can help with this part – in fact, you should be able to count on their help and resourcefulness for your entire financial journey.
Do your homework: Build a budget
Between school supplies, courses, commuting and school fees, a back-to-school shopping list can feel daunting, endless and expensive. Find savings by teaming up with your kids to identify which costs are needs versus luxuries, and then prioritize or cut as need be. Use what you’ve spent in previous years as a baseline to create a budget for the current year, adjusting for any new or increased costs you expect to come up. Because budgets can be quickly impacted for unexpected costs, consider a back-up fund. Tracking your spending, spreading out purchases, buying in bulk, reusing items and investing in supplies that are quality (not just trendy) will help you properly manage that budget for years to come.
It’s your (financial) responsibility: Manage your money with the proper mindset
For many, there are at least two life pivotal transitions that take place after graduating high school: entering the world of post-secondary education, and (more importantly) taking on a more mature financial mindset. This is a great time to encourage kids to open their own TFSA, or even a First Home Savings Account (FHSA). While the TFSA can be used for shorter term financial goals, the FHSA should really only be used for money that is being set aside for a housing purchase within the next 15 years. Encouraging your children to form good financial habits today will prove to be very powerful over the long term.
Knock. Knock: Don’t forget to check in
You’re already likely to keep tabs on your children throughout the year to make sure they are staying on top of their laundry and homework, but some parents might forget to check-in with their own financial advisor. Meeting regularly with your advisor helps to:
Manage budget changes in real-time as your family’s expenses and priorities shift
Keep your finances on track by reviewing whether you are staying on target you’re your financial goals
The cost to attend a post-secondary institution can be massive, and the price tag can become even harder to cover without the right plan. So start early. Save for the long-term. And lean on the advice and tools that only a good financial advisor can provide. You – and your future student – will be thankful for being proactive.
To learn more about setting you and your kids up for financial success visit www.cwbwealth.com
Aaron Hector is a Private Wealth Advisor with CWB Wealth where he has been for the past 16 years. In his position he works with clients in a financial planning capacity. The majority of his clients are of an ongoing long-term nature, but he also prepares financial plans on a fee for service basis for those who are more interested in a one-time financial planning engagement. He is the Symposium Chair and board member for the Institute of Advanced Financial Planners (IAFP) and a member of the Financial Planning Association of Canada (FPAC).
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