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).

Timeless Financial Tips #5: Trust the Evidence

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Lowrie Financial: Canva Custom Creation

 

Evidence-Based Investing – Your Best Chance to Hit Your Long-Term Investment Goals

By Steve Lowrie, CFA

Special to Financial Independence Hub

If I could, I would grant amazing investment returns to every investor across every market. Unfortunately, that’s just not how it works. In real life, we must aim toward our financial ideals, knowing we won’t hit the bullseye every time.

That’s why I recommend evidence-based investing: or investing according to our best understanding of how markets have actually delivered available returns over time, versus how we wish they would. Our “best understanding” may still be imperfect, but it sure beats ignoring reality entirely.

Luck-Based Investing and Random Returns

Many investors try to pick and choose when and how to invest based on what they or others are predicting will happen next. All evidence suggests their success or failure will be driven far more by luck than skill. Worse, going down this path, there is a very high probability they’ll end up with worse results versus a properly structured “buy and hold” approach.

Some deliberately embrace this approach, hoping to “beat” the market. Others come to it accidentally, by reacting to financial behavioural biases such as panic-selling or spree-buying. Either way, these sorts of investment portfolios typically devolve into a disheartening assortment of holdings over time, offering little sense of where you stand in relation to your own goals or overall market performance. The odds stack steeply against your achieving any carefully planned outcome: provided you had one to begin with.

Evidence-Based Investing and Portfolio Planning

In contrast, evidence-based investors adhere to decades and volumes of time-tested, peer-reviewed analysis by academics and practitioners alike. In aggregate, we seek to answer an essential investment challenge:

How can an investor increase the probability they’ll capture the highest expected market returns, given the levels of investment risk they’re willing to accept?

The answers point to a two-step strategy:

1. Build It. Prepare your personal portfolio:

  • Allocate your investments between broad asset classes.
  • Widely diversify your bonds and equities to reduce the unnecessary risks inherent to individual bond or stock picks.
  • Tilt your overall portfolio toward factors with higher expected returns, according to your personal financial goals and risk tolerances.

2. Keep It. Sit tight with your carefully constructed portfolio for the long term, to ensure you capture the expected long-term growth from your various market allocations. So, stay invested through thick and thin and set aside enough cash reserves to cover upcoming spending needs.

At the risk of repeating ourselves (which is, after all, the theme of this “Play It Again, Steve” financial tips blog series), evidence-based investing translates into building and maintaining a portfolio that looks something like this:

three key portfolio construction decisions

Keeping It: The Hardest Thing

It’s one thing to build an ideal portfolio. It’s another to keep it in balance as intended. In fact, thanks to our behavioural biases, I would argue it’s the hardest part.

For example, what will you do after the stock market has been surging, and your 60%/40% stock/bond allocations end up being closer to 70%/ 30%.? You’ll probably want to let your overweight allocation to high-flying stocks ride, hoping to score even more. That’s because recency and other behavioural biases trick us into believing the party will never end. However, the more prudent, evidence-based move is to sell some of your equity allocations (selling high) and use the proceeds to buy more humdrum fixed income (buying low), until you’re back to your original 60%/40% mix. Continue Reading…

Social Media Side Gigs: How Students are Using Social Media for Financial Freedom

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By Beau Peters

Special to Financial Independence Hub

Financial freedom can feel like a pipe dream when you’re in college. You hardly have enough time to complete all of your assignments, let alone work a full-time job and earn enough income to complete all of your financial goals.

That said, there are more jobs that exist online that can help you become financially independent, thanks to the digital age. As a native user of social media, you can find plenty of paid opportunities as an influencer, social media manager, or crafter of homemade goods.

A social-media side gig is great for your long-term career goals, too. You’ll always have employable skills to rely on and can point towards a portfolio of profitable, engaging social media content.

Influencer

If you’re a traditional student, you’re likely a native user of social media platforms like TikTok and Instagram. You may have even built a significant following of friends and strangers who also use the platforms you love. Becoming a brand ambassador or influencer can help you monetize your account and earn extra income through product profiles and branded content.

Start earning money on Instagram by switching your account to “creator mode” and connecting your account with affiliate programs. With the help of these programs, you can link to businesses and brands from across the globe  like:

  • Amazon Associates
  • eBay Partner Network
  • CJ Affiliate by Conversant
  • Rakuten Marketing

These platforms can connect you with brands that align with your values and overall aesthetic. You will need to adhere to their specific rules and guidelines, though, as ill-thought-out influencer marketing can derail a brand’s overall marketing strategy.

If you have a large enough following, you can also get paid directly via sponsored posts. Sponsored posts need to be clearly tagged to stay within Instagram’s rules, but they can be a great way to earn extra income. Improve the effectiveness of sponsored posts by utilizing strategized hashtags and interesting captions that draw users in.

Social Media Manager

The role of a Social Media Manager is to oversee posts, engagement, and branded content that goes live on a business’s social media accounts. Social media managers typically have a flair for analytics and aesthetics, as they know how to blend brand guidelines with audience trends and consumer data.

This may sound like a full-time gig, but you can balance your college work with social media management for small businesses. As a native user of social media sites, you already know the current trends and how to blend branded content with videos and images that inspire your audience. Continue Reading…

The Value of Advice

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By John DeGoey, CIM, CFP

Special to the Financial Independence Hub

Over the past few years, there have been dozens of articles in magazines that are distributed to financial advisors about both the value and cost of financial advice.

Most are overly simplistic to the point of being inaccurate and downright misleading.  As you might imagine, any publication that caters to financial advisors will have a decidedly pro-advisor editorial perspective.  That’s all fine and well, but there are nuances that are glossed over too frequently that cause some observers to worry about the soundness of financial advice echo chamber that many advisors seem to live in.

Since I’m an advisor myself, it should be obvious that I am a strong proponent of quality financial advice.  The concern that I have is that within my own industry, the financial media has taken that perspective a step further and is moving toward boosterism that is almost jingoistic.  There are two things that the ‘for advisors only’ media seems to gloss over.  In both instances, the short shrift is because a more fulsome discussion might be awkward for certain elements of the industry.

The two things “Advisors Only” media gloss over

The two issues are:

1.) The distinction between good advice and bad advice. This is admittedly subjective, but the media doesn’t ever seem to venture into making a distinction because it seems unwilling to alienate a segment of the advisor population.  Surely to goodness, not all advice is good advice and not all advisors are good advisors.

2.) The ongoing focus on the cost and value of advice while simultaneously and conspicuously remaining silent on the cost and value of investment products. Clients pay for both advice and products, so why explore one aspect ad nauseum while saying almost nothing about the other?

Let’s begin by looking at the touchy subject of what constitutes good advice in the first place.  Obviously, there is no single best set of answers to this matter.  Continue Reading…

A Self-Checkup on your Financial Health to help your Mental Wellbeing

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Image courtesy FPCanada

 

By Sahar Abdul Zahir, BlueShore Financial

Special to Financial Independence Hub

Many people view money as simply numbers that get you from point A to point B, and may not make a connection between how finances can also impact mental and physical health. However, FP Canada’s 2022 Financial Stress Index survey found that 38% of Canadians believe finances are their biggest source of stress, ahead of both health and relationship issues. More alarmingly, FP Canada’s study also found that 43% of respondents had lost sleep over financial anxiety.

There are a variety of reasons why many of us do not seek professional advice for our financial problems, ranging from not thinking we need the help, to being embarrassed, or not knowing where to go. Regardless of the reason, there is a clear link between finances, anxiety, stress, and mental health, and avoidance of the problem is not the answer. The good news is, there are many steps you can take today to help get yourself back on track.

Understand your relationship with money

Many people still believe that talking about money is taboo, or feel embarrassed to discuss financial troubles, even with a professional. Financial literacy should begin at an early age and continue as a lifelong learning process. Having an open dialogue around finances and money management as a family can be a good thing as your experience with money, or lack thereof, in your childhood can impact your attitude and emotions towards money later in life. Make note of impulse buying behaviour and what may trigger it: perhaps a hard day at work, or an argument with your partner. Understanding these spending patterns will allow you to find better ways to manage these stresses and adjust accordingly.

Financial health checkups

Just like doing a regular physical health checkup, having periodic financial wellness checkups is important for detecting any areas that you should focus on. This can be done by completing a thorough audit of finances, budgets, and plans with an advisor. An annual checkup can help you better prepare for the future and minimize the impact of any surprise events. Also utilizing online advice tools such as BlueShore’s Financial Wellness Checkup tool can help get you started, by providing an assessment of how you are doing, and advice on where you need to improve along your path to financial wellness.

Small cuts for long-term impact

We have all heard the latte-a-day and avocado toast analogy. While these items can seem like small expenses that are not likely to make a big impact on our overall financial health, they are really representative of our spending habits. Cutting out your morning coffee is not going to make you wealthy, but you may have some ongoing small expenditures that quickly add up and could affect your long-term financial goals. Continue Reading…

The superiority of Canadian “Robo Advisors” over mutual funds

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By Dale Roberts, cutthecrapinvesting

Special to Financial Independence Hub

This is a battle between lower-fee Canadian Robo Advisor portfolios vs high-fee Canadian mutual funds. As you are likely aware, Canadians pay some of the highest investment fees in the world. Larry Bates, the author of Beat The Bank, calls those fees wealth destroyers. Lowering fees is one of the most predictable ways to increase your investment returns. More money stays in the right pocket; your pocket. By way of the Questwealth Portfolios (from Questrade) let’s have a look at the superiority of Robo Advisors over Canadian mutual funds.

Here’s the review of Larry’s Beat The Bank. That is a must read. On Larry’s site you will also find a tool that will calculate the cost of high investment fees.

The Questwealth Portfolios

There are three simple ways that Canadians can leave behind their advisor and high fee mutual funds. If you want investment advice and managed global ETF portfolios, you can look to one of the Canadian Robo Advisors.

Here is a post on what is a Robo Advisor? As you’re about to discover, this is a far superior approach to a typical high-fee mutual fund. Also consider that most high-fee mutual funds in Canada are offered by salespersons and not ‘real’ advisors.

Questwealth is one of the Canadian Robo Advisors. And don’t be fooled by that Robo word. While you can choose to do everything online from start to finish, real humans are available for investment advice and guidance. And at a shop such as Justwealth you’ll have a dedicated advisor, with financial planning available.

You can have it all in a low-fee environment.

Not investing with Mom and Dad’s guy

Questwealth offers the Questwealth Portfolios. They are the lowest fee Robo offering in Canada. And they are famous for their advertising. Many younger Canadians are not following their Mom and Dad, running into the bank, Investor’s Group or AGF (or other mutual fund sales shop) to fill the pockets of advisors and mutual fund creators. Nope, they are learning how to self-direct and how to take control of their own wealth building destiny.

In one commercial the younger brother turns to his embarrassed older bro and offers …

You’re not still investing with Mom and Dad’s guy, are you?

It’s nice to see many Canadians become their own advisor. Keep that 2% or more in your own pocket. You’ll need bigger pockets, by the way.

Questwealth Portfolios vs Canadian mutual funds

Questrade suggests (based on the simple fee math) that over time Canadians could retire 30% wealthier. That said, it’s a much greater benefit than that 30% suggestion. Based on the return differential to date, you’d be looking at returns that are 50% better (or more) over a 30-year period. Retiring with 50% more is obviously life changing.

And of course, a 5-year performance is a shorter period, but it aligns with the known underperformance of high-fee actively-managed Canadian mutual funds.

Also, past performance does not guarantee future returns.

You’ll find a calculator on their site.

Here’s the Questwealth Portfolios vs typical or average mutual funds in Canada, to the end of February 2023. The mutual fund returns are based on Questrade calculations, looking at the available data for the mutual fund space. That list and returns for the individual mutual funds was also provided to me.

And here’s Questwealth vs the RBC Select balanced mutual funds.

And here is a post that looks at Justwealth vs Canadian bank mutual funds.

The outperformance is outrageous.

Ditch your high-fee mutual funds

It appears to be a no-brainer: ditch your high-fee Canadian mutual funds. If you decide that a Robo option such as the Questwealth Portfolios is right for you, you’ll find it is an easy process to make the move. They can help you with the transfer process.

Here’s the link to Questrade.

But please pay attention to any tax consequences should you have any taxable accounts. You might consider Justwealth if you need to transfer considerable taxable amounts. They can accept your taxable account mutual funds and will drawdown the assets over time in a tax-efficient manner.

Create your own ETF Portfolio

If you want to leave your mutual funds behind, you can also create your own ETF portfolio. Here’s the performance of the core ETF portfolios.

Continue Reading…