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).

The Ripple Effect of Representation: Elevating Voices in Canadian Finance

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By Sara Loriot

Special to Financial Independence Hub

Representation in our industry matters: a lot. For too long, finance has been associated with a narrow archetype of who belongs.

But in reality, some of the most successful minds in our industry come from different backgrounds and took unconventional paths, bringing unique perspectives that drive innovation. By showcasing these individuals, my goal is to challenge outdated stereotypes and make it clear: finance is for anyone. Seeing real people succeed by being unapologetically themselves can inspire others to recognize their own potential in this space.

Diverse Dividends is a new video series by CFA Society Toronto, the largest association of its kind serving the investment and finance industry in Toronto. At the heart of what we do is helping our members advance in their careers, build connections, and share knowledge and insights through educational programming that fosters growth and empowers the next generation of leaders in finance and investing.

This series is an example of that mission in action and, as host of this series, I have the privilege of amplifying the voices of leaders who aren’t just part of the financial landscape: they’re reshaping it. Many of my guests didn’t study finance, yet they’ve become some of the most influential figures in the industry. Their diverse backgrounds influence how they lead, how they assess risk, and how they solve problems. They don’t fit into a single mold, and that’s precisely why they excel.

When I talk about diversity, I don’t just mean gender or optics: it’s about how people think, lead, and approach challenges. Life experiences shape leadership, and the paths that bring people into finance are as important as the technical skills they acquire along the way. In fact, I often ask my guests about their hobbies because what we do outside of work shapes how we innovate inside of it.

Analytical skills are important in finance, but creativity and emotional intelligence are equally essential. Some of the most innovative financial professionals aren’t the ones following formulas: they’re the ones questioning them.

Diversification the universally accepted principle in Finance

In finance, diversification is a universally accepted principle: no one questions that spreading risk across different assets leads to more resilient portfolios. The same logic applies to leadership and building teams. A team that brings diverse perspectives, experiences, and ways of thinking is better equipped to navigate challenges, adapt to change, and drive innovation. That’s why Diverse Dividends embraces a “go-anywhere” format; because understanding who someone is, rather than just what they do, reveals the true value they bring to the industry. Continue Reading…

A Misunderstanding about Taking CPP Early to Invest

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By Michael J. Wiener

Special to Financial Independence Hub

Recently, Braden Warwick at PWL Capital created an excellent CPP calculator that we can all use.  One of the numbers this calculator reports is the IRR (Internal Rate of Return) you’ll get between your CPP contributions and the CPP pension you’ll collect.  Some financial advisors (but not Braden) decide it makes sense for their clients to take CPP as early as possible (age 60), and invest the proceeds.  Their reasoning is that they believe they can earn a higher return.  Here I explain why this logic compares the wrong returns.

The return you’ll get on your CPP contributions depends on the contributions you and your employer have made and the benefits you’ll get.  These amounts depend on many factors about your life as well as some assumptions about the future.  Typically, the return people get on CPP is between inflation+2% and inflation+4%.  (However, it can go higher if you took time off work with a disability or to raise your children.  It also goes higher if you ignore the CPP contributions your employer made on your behalf, but I think this makes a false comparison.)

If we examine people’s lifetime investment record, not many beat inflation by as much as CPP does.  However, some do.  And many more think they will in the future.  In particular, many financial advisors believe they can do better for their clients.

But what are we comparing here?  These advisors are imagining a world where CPP doesn’t exist.  Instead of making CPP contributions, their clients invest this money with the advisor.  In this fictitious world, the advisor may or may not outperform CPP.  However, this isn’t the world we live in.  CPP is mandatory for those earning a wage.

The choice people have to make is at what age they’ll start collecting their CPP pension.  The CPP rules permit starting anywhere from age 60 to 70.  The longer you wait, the higher the monthly payments get.  Consider an example of twins who are now 70.  The first started CPP a decade ago at 60 and the payments have risen with inflation to be $850 per month now.  The other waited and has just started getting $2000 per month.  The benefit of waiting is substantial if you have enough savings to bridge the gap between retiring and collecting CPP, and don’t have severely compromised health.

Those with enough savings to bridge a gap of a few years have a choice to make.  Should they take CPP immediately upon retiring, or should they spend their savings for a while in return for larger future CPP payments?  Some advisors will say to take CPP right away and invest the money, but this is motivated reasoning.  The more money we invest with advisors, the more they make. Continue Reading…

Saving vs. Investing: Understanding the best approach for Findependence

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Image by unsplash

By Devin Partida

Special to Financial Independence Hub

Achieving Findependence [aka Financial Independence] requires a balanced strategy combining short-term stability and long-term growth.

Saving and investing both play crucial roles in this journey, serving different financial goals and timelines.

Explore how you can navigate these strategies to optimize your financial portfolio.

 

 

The Role of Saving: Security and Liquidity

Savings are the foundation of Findependence. An accessible savings account provides a safety net for emergencies, such as medical expenses or job loss. Experts recommend maintaining at least three to six months of living expenses in a high-yield savings account or money market fund for quick access.

Here are some key advantages of saving:

  • Risk-free growth: In addition to offering modest interest, savings accounts protect your principal from market fluctuations.
  • Short-term goals: Savings are ideal for upcoming expenses like vacations, home repairs or a new car.
  • Liquidity: Saving provides liquidity during unexpected situations. Certain saving vehicles — like 529 plans — also allow for tax-free growth and withdrawals for qualified expenses.
  • No market risk: Unlike investments, savings are not exposed to fluctuations, making them a reliable choice for safeguarding funds.
  • Psychological benefits: Having a financial safety net reduces stress and fosters confidence in your ability to handle unexpected events.
  • Flexibility: Savings provide liquidity without penalties, making it easy to pivot funds as priorities change.

However, relying solely on saving limits wealth-building potential due to inflation, which can erode the purchasing power of idle cash over time.

The Role of Investing: Growth and Wealth Accumulation

Investing is essential for long-term financial growth, particularly for goals like retirement or major life milestones. By allocating funds to stocks, bonds or mutual funds, you can potentially achieve higher returns that outpace inflation.

Here’s how investing can benefit you:

  • Compound returns: Investments grow exponentially over time due to reinvested earnings.
  • Inflation protection: Historically, investments in the stock market have delivered higher returns than inflation.
  • Wealth generation: Investing enables you to build significant assets over decades.
  • Diversification opportunities: Investments allow you to spread risk across various asset classes, industries and geographies.
  • Passive income generation: Certain investments — like dividend-paying stocks or rental properties — create ongoing income streams.
  • Long-term tax benefits: Investment accounts like individual retirement accounts (IRAs) or tax-free savings accounts (TFSAs) offer tax advantages that amplify growth over decades.

Investing does involve risks, including market volatility and potential losses. It requires a clear understanding of your risk tolerance and financial goals.

Savings and Investments: Finding the right balance

A well-balanced approach integrates saving and investing to address immediate needs and future aspirations. Here are steps to consider:

  • Assess your financial situation: Calculate your emergency savings and allocate sufficient funds to cover unexpected expenses.
  • Define your goals: Short-term goals may require savings, while long-term aspirations like retirement demand an investment strategy.
  • Evaluate risk tolerance: Younger individuals with longer timelines can generally afford higher-risk investments, while those nearing retirement may prefer conservative options.
  • Diversify your portfolio: A mix of savings and investments minimizes risk while capitalizing on growth opportunities.

Practical Tips for Success in Saving and Investing

Finding the perfect balance between saving and investing can seem daunting, but taking specific action steps can make the process manageable and effective. Here are additional practical tips to enhance your financial strategy: Continue Reading…

 Why you should be a bit wary of the U.S. market in 2025

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Getty Images, courtesy BMO ETFs

By Bipan Rai, BMO Global Asset Management

(Sponsor Blog)

When one hears the term ‘American exceptionalism,’ for some investors, the first images that come to mind are perhaps that of a certain President-elect and his inclinations towards jingoism. But the usage of the term outside of the U.S. has intensified of late, particularly when it comes to markets.

Indeed, more than any other time in modern history, the U.S. markets are benefitting from a strong influx of foreign capital (Chart 1). The impact has been profound, with U.S. equity market valuations now at levels that go beyond what is generally thought reasonable, while the U.S. dollar (USD) is trading close to two-year highs. Within the leading global equity index, the U.S. accounts for almost 70% of the weight, well over double where things stood a few decades ago.

Chart 1 – U.S. Attracts more Foreign Capital than any Other Point in History

Source: BEA, BMO Global Asset Management, as of December 31, 2024.

Chart 2 – Two-Year Price Return of Selected Equity Indices

 

*In USD terms, prices only. Source: BMO Global Asset Management, as of December 31, 2024.

Now, there are several easily digestible reasons why the U.S. market continues to capture the hearts and minds of investors worldwide. To start, U.S. economic fundamentals remain sound, with flexible labour and deep capital markets combining to deliver an enviable track record of productivity. That’s directly helped generate impressive earnings for American companies. Additionally, lower debt levels among U.S. households (compared to other developed markets) buttress a strong propensity to consume. As such, the U.S. economy has expanded by an average of just under 3% year-over-year (YoY) over the past four quarters – even with interest rates not far off generational highs.

Chart 3 – Average Real Growth by Economy (Past Four Quarters, Year-Over-Year)

Source: BMO Global Asset Management Q3 2023-Q3 2024

Those sorts of fundamentals form the bedrock of why the U.S. continues to draw in foreign capital. From the eyes of global investors, Japanese and European markets offer too low of a yield, with political risk for the latter becoming more of a risk going forward. Meanwhile, authorities in China appear bent on moving forward with deleveraging in the real estate sector and at the regional government level. That means the necessary stimulus to prop up Chinese consumption will likely be done piecemeal and via monetary policy. Elsewhere, while some Emerging Markets (EM) may still offer relatively attractive yields, the risk profile looks very different as inflation threats linger and the world’s largest buyer of EM goods (the U.S.) becomes more insular. And we haven’t even mentioned the liquidity of U.S. assets – which becomes very attractive during volatile periods. Add it all up, and the risk/return profile in the U.S. looks far better than it does in any other country.

4 Reasons to Reorient Exposures

However, having said the above, the coast is not all clear for another banner year for U.S. assets. Instead, we see strong enough arguments that tell us that U.S. assets shouldn’t perform to the same degree that they have over the past few years. Being less enthusiastic about the theme of ‘U.S. exceptionalism’ means that we will be orienting our strategy for the coming year away from index plays and towards alternative investments and structured outcomes that are tailored towards generating cashflow. There are many reasons why we think this will be the optimal strategy to pursue. Continue Reading…

Canada’s best Asset Allocation ETFs

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By Dale Roberts

Special to Financial Independence Hub

When the Canadian asset allocation ETFs were introduced several years ago, the investment community hailed them as “game changers.” That is, the final nail in the coffin for high-fee / low-performance Canadian mutual funds.

The asset allocation ETFs are well-diversifed, managed global portfolios available at 5 risk levels. The fees represent about a 90%-off sale compared to the typical mutual fund. The fees range from 0.17% to 0.25%. It’s a no-brainer for most Canadians. You can open an account with a discount brokerage, enter one ticker symbol (XEQT for example), enter an amount, press Buy and own thousands of companies around the globe. Are these the best funds available in Canada? Yes, that’s a rhetorical question.

Here’s an ode to XEQT from Loonies and Sense.

 

Cut The Crap Investing is the only blog that tracks the performance of the leading Asset Allocation ETF providers. I also sort them by risk level. For example, you’ll see the performance comparison between the balanced portfolios from Vanguard and BlackRock and the rest of the AA gang. You’ll also see the surprising outlier “winner” that includes modest amounts of bitcoin in its offerings.

Check out the ultimate Canadian asset allocation ETF page. Here’s a teaser: the balanced growth models. They range from 80% stocks / 20% bonds to 90% stocks / 10% bonds. The returns listed are average annual.

Build your own portfolio

While the asset allocation ETFs are the easiest, hands-off way to go, you can certainly build your own ETF portfolio. You’ll save modestly on fees, and you will be allowed some flexibility on how you would like to shape the portfolio. I’ve offered examples of core portfolio models.

Here’s the updated (to the end of 2024) total returns for the core Canadian ETF Portfolios on Cut The Crap Investing. The build-your-own models have outperformed the asset allocation ETFs, in modest fashion. Continue Reading…