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).

Resource Stocks provide long-term gains and inflation hedging

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Photo from iStock

Including good stocks for long-term investment gains from the Resource section can be especially helpful in times of inflation. Learn more below.

For most investors, resource stocks should make up only a limited portion of their portfolios. That means that while we think you should maintain some exposure to resource stocks, you should still aim to balance your portfolio across most if not all of the five economic sectors.

If you want resource stocks in your diversified portfolio, then you need to know how to find good stocks in that sector for long-term investment gains.

Resource stocks, though volatile, tend to rise with inflation and can be good stocks for long-term investment gains

The resource sector is subject to wide and unpredictable swings in the prices it gets for its products. In the rising phase of the business cycle, when business is booming, resource demand expands faster than resource supply, so resource prices shoot up. This balloons profits at resource companies. When the economy slumps, resource prices fall, and this drags down resource profits and stock prices.

In addition to rising and falling with the business cycle, however, resource stocks have a history of rising along with long-term inflationary trends. This gives them a rare ability: they provide a hedge against inflation.

Back in the inflationary 1970s and 1980s, investors used to see this hedge-against-inflation ability as the main reason for buying resource stocks. But until recently, they rarely thought of it. That’s because inflation had waned for three decades.

Inflation peaked at a yearly rate around 13% in the early 1980s. It fell by two-thirds from that level by the middle of the decade. It went through a series of peaks and valleys, but had been working its way downward ever since.

However, after years of relative stability, inflation has come back to levels not seen in decades.

While the cost of just about everything has gone up, nobody can predict trends in inflation or interest rates with any consistency. And we disagree with investors who think we are on the verge of a huge outburst of never-ending price increases.

Even so, adding top Resource stocks to your portfolio lets prosper two ways: you can profit even without inflation — and these stocks will also provide an added boost in inflationary times.

It’s important to know your risk tolerance when investing in good stocks for long-term investment gains — including Resource stocks

There are several considerations that go into a successful growth investing strategy. Still, many investors overlook a number of important factors that can lower their risk.

In the end, there’s no such thing as risk-free investing. The tips below for lowering your growth investing strategy risk have long been part of the Successful Investor approach.

  • Balance your cyclical risk
  • Be skeptical of companies that mainly grow through acquisitions
  • Don’t overindulge in aggressive investments
  • Keep an eye out on a growth stock’s debt
  • Keep stock market trends in perspective
  • Look for growth stocks that have ownership of strong brand names and an impeccable reputation
  • The best long-term growth stocks should have the ability to profit from secular trends

Meantime, we continue to recommend that you cut your risk in the volatile resource sector by investing mainly in stocks of profitable, well-established mining companies with high-quality reserves. And as mentioned, resource stocks (and this includes oil and gas, of course) should make up only a limited portion of your portfolio. Continue Reading…

Income Needs and Wants in Retirement

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Source: The Behavior Gap

By Mark Seed, myownadvisor

Special to Financial Independence Hub

Some time ago on this site I wrote one of the biggest retirement questions is: how much is enough?

What might be our income sources, needs and wants be in retirement?

The answer to such questions are usually: it depends.

This updated post will share those details and outline how such needs and wants might be funded in our upcoming semi-retirement days – planned for sometime in 2024.

Read on and let me know your thoughts, questions or comments!

What are your income needs and wants in retirement?

It largely depends on what you’ll spend in retirement.

That’s always been step #1 in our book.

Whether you’re 35, 45 or 55, I believe it’s essential to figure out what retirement might look like to you.

Here are a few questions we’ve been working through:

1. When do we want to retire or semi-retire?

Math is helpful but I also believe we want to retire to something.

Both of my parents stopped all form of work around age 60. That may or may not work for me – literally. I like to be busy and instead of stopping work cold-turkey per se I would rather glide into semi-retirement/work on own terms and then slowly ease off the gas pedal per se whenever I want. At least that is my thinking now …

Sure, math helps: the later you retire from full time work, the longer you have to accumulate that retirement nest egg. But I believe there is also the work-optional option of part-time work in our 50s when the debt is gone and most of the assets needed for full-on retirement spending have already been accumulated.

Your mileage may vary. :-)

2. Where do we want to live in retirement or semi-retirement?

Likely Ottawa, as a home base still.

Our family is here. Most of our good friends are here or in the immediate area.

We don’t aspire to own a second home in the sunny south – too many liabilities.

We do however want to travel more/live some time abroad.

Our thinking could always change but it will be nice to have our condo bought and paid for without any debt on the books very soon and maintain it as a home base.

This means all income we do intend to make, including during semi-retirement, is for us to spend as we please.

3. What will our expenses be?

The general wisdom is that you will need somewhere between 70-80% of your current salary for living expensses in retirement. That means, if you make $100,000 combined per year, you should plan to have $70,000 to $80,000 in combined retirement income spending, as an example.

This general wisdom includes the logic that you are likely to spend less as a retiree – since you’re not commuting to work, you might have downsized your home, and/or you’re not supporting dependents.

I think these rules of thumb (like the 4% safe withdrawal rate/rule while valuable to a point) don’t make much sense when you dig further into your personal details, needs and wants. Rules of thumb are a starting point – only.

I far prefer to calculate what our fixed expenses will continue to be, during retirement, including inflationary spending, adding in some variable spending needs and wants as well.

Here is a snapshot on the former:

Key expenses Monthly Annually Semi-retirement comments ~ end of 2024???
Mortgage $2,240 $26,880 We anticipate the mortgage “dead” before the end of 2024.
Groceries/food $800 $9,600 Although can vary month-to-month!
Dining/takeout $100 $1,200
Home maintenance/expenses $700 $8,400 Represents 1% home value per year, increasing by inflation.
Home property taxes $500 $6,000 Ottawa is not cheap, increasing by inflation or more.
Home utilities + internet/TV/cell phones, subscriptions, etc. $400 $4,800
Transportation – x1 car (gas, maintenance, licensing) $150 $1,800 May or may not own a car long-term!
Insurance, including term life $250 $3,000 Term life ends in 2030, will self-insure after that without life insurance.
Totals with Mortgage $5,140 $61,680
Totals without Mortgage $2,900 $34,800 As you can see, once the debt is gone, we’ll be in a much better place for financial independence!

Add in other spending/miscellaneous spending to the tune of $1,000 per month and that’s our base budget. Continue Reading…

Digital wallets: How payment technology is dominating the future of finance

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Photo credit by Adyen

By Sander Meijers

Special to Financial Independence Hub

The payments technology industry is exploding in Canada. Due to economic indicators and progressive technology alike, consumers across the country have adopted new habits over the past few years, changing how they make payments. In particular, the adoption of e-commerce and unified commerce solutions validates that consumers are demanding more flexibility in how they use their “wallet.”

One trend to watch is digital wallets, which have become an increasingly important feature for Canadian merchants to offer. Since 2021, nearly one third (29%) of Canadians have completed a purchase using a digital or mobile wallet. With digital wallet options including Apple Pay, Google Pay, and WeChat Pay gaining in popularity, Canadians are regularly using their mobile devices to make payments in person and online. Knowing exactly how to implement a digital wallet can make a difference in how Canadians can make payments in 2023 and beyond.

Understanding what a digital wallet is

 A digital wallet stores payment information, such as credit cards, which enables the consumer  to pay both online and in person. This ultimately streamlines the payments experience for businesses and shoppers alike. A digital wallet can also be a software program on a desktop or built into an internet browser.

The most important thing to know about digital wallets is that they can completely replace the need for physical payment cards. Some digital wallets also let consumers make peer-to-peer payments, ATM withdrawals, and pre-load funds. Other digital wallets store more than payment information, including loyalty cards, vouchers, tickets, and more in the same place.

There are also mobile wallets, which work only for mobile devices  such as smartphones and smartwatches. The key difference here is that “digital wallet” is a term that includes mobile wallets. In Canada, when it comes to online payments, digital wallets are the second most popular form of payment among shoppers.

What are the perks of digital wallets?

There are major benefits for businesses to accommodate digital wallets in Canada, including expanding your consumer reach, stabilizing  conversion rates, and strengthening high security levels.

Canada is a socioeconomic melting pot, welcoming a diverse range of consumers from across the world. As such, shoppers from around the world have different payment preferences, so increasing flexibility and payment options helps ensure that today’s diverse consumer profile can complete their payments in methods with which they are most comfortable. Continue Reading…

Re-examining our plans for Financial Independence

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Re-examine our financial independence plans
Image courtesy Tawcan.com

By Bob Lai, Tawcan

Special to the Financial Independence Hub

 

When we started our financial independence journey back in 2011, we didn’t set a specific FI date or number. In our minds, we do not doubt whether we could become financially independent or not. We knew we’d become financially independent in the future. It was just a question of time. We simply needed to have patience and let our investments compound over time.

A few years into our FI journey, our FI plan started to evolve. Rather than having a specific liquid net worth and utilizing the 4% safe withdrawal rule, we decided to have enough dividend income to cover our expenses. Looking at the calendar, we randomly set a target of reaching this milestone by 2025 or earlier.

It’s funny how ten years seemed to have gone by in the blink of an eye. At the same time, a lot has happened in our lives…

  • Getting engaged and married
  • Having two kids
  • Moving from an apartment in Vancouver to a house in the suburb
  • Me having different job titles, going from engineering to project managing to product marketing to engineering
  • Mrs. T starting her holistic doula practice
  • Starting my photography business ( I’ve been on a bit of break the last few years)
  • Starting this blog, writing articles, learning new things, and connecting with other like-minded people

One thing I’ve realized is that life is never static. It’s always dynamic. Although we can do as many projections and make as many plans as we possibly can, projections and plans do and will change. Therefore, with three years to go before 2025, I thought it would be a good time to re-examine our financial independence plans and see if we need to make any adjustments.

Our FI numbers 

Since starting our FI journey, we have tracked our expenses meticulously. Here are our annual expenses since 2012:

Total Necessities Total Annual Spending
2012 $26,210.52 $44,603.76
2013 $26,343.00 $45,260.88
2014 $29,058.96 $47,391.96
2015 $31,256.88 $47,270.16
2016 $29,831.40 $47,566.96
2017 $33,887.68 $51,144.77
2018 $31,840.75 $57,231.99
2019 $33,199.98 $54,906.02
2020 $35,511.60 $48,908.74
2021 $38,950.66 $71,852.02

Necessities cover core expenses like food, insurance, housing, clothing, utilities, car, etc. Other expenses are considered as non-core expenses which include things like dining out, skiing, camping, travel, charitable donations, gifts, etc.

The last two years have been abnormal in terms of spending. Due to the pandemic, our spending was much lower than usual in 2020. Then last year we had unplanned expenses of around $16,500 on our cat and our house. If we take this amount out, it’d put our 2021 annual spending to around $55,000.

Based on our historical spending trend, I would estimate that we need somewhere between $50,000 to $60,000 in dividend income annually to cover our expenses. To be on the safe side, I’d use $60,000 annual spending for any FI plans because we need to have inherent built-in flexibility on variables outside of our control, like major purchases, emergencies, etc.

The $60k annual spending estimate, of course, assumes that we continue to live in Vancouver and do not have many significant changes in our spending habits.

One thing to keep in mind is our spending can drastically come down if we decide to geo-arbitrage by moving to a smaller Canadian town or somewhere in South East Asia with a lower cost of living than Vancouver. On the flip side, the spending number can increase if we move to Denmark and live there for a few years (I’m ignoring the tax consequences for now).

How much do we need in our dividend portfolio?

How much do we need in our dividend portfolio to generate $60,000 in dividend income? Let’s do a quick math exercise, shall we?

For $60,000 dividend income per year, at 3% dividend yield, we’d need a dividend portfolio worth $2 million; at 4% dividend yield, we’d need a dividend portfolio worth $1.5 million. In other words, we need a portfolio valued between $1.5 million to $2 million. That’s certainly not a small chunk of change.

Now, if we take a middle-of-the-road approach and use a portfolio dividend yield of 3.5%, that means a portfolio value of around $1.714 million.

One thing is clear – we need to continue to save and invest money in our dividend portfolio. We also need to find the right mix between high-yield low-dividend growth stocks and low-yield high-dividend growth stocks.

With three years remaining in our FI timeline, it might be tempting to start buying more very-high-yield dividend stocks to make sure we can reach our FI target. But it is very important to make sure our dividend income is safe and remains sustainable over time. We definitely don’t want to hit $60,000 in dividend income one year only to see that amount slashed by 20% or more the next year.

The stability of our dividend income is extremely vital.

We also want to make sure the portfolio value continues to appreciate over time. The rationale is simple – total returns matter. Having a stable and safe dividend income and a portfolio that increases value over time will give us more options.

By 2025, both Mrs. T and I will be in our early 40s. With decades ahead of us, we need to ensure our dividend income can grow organically over time and inflation doesn’t eat into our dividend income’s buying power. It will be necessary to have some low-yield high-dividend growth stocks in our portfolio to allow for organic dividend growth.

The plan of living off dividends 

Living off dividends is an amazing idea. Based on my dividend income projection, we should receive $51,000 in dividend income in 2025. However, when we compare that number with the $60,000 annual spending target, it doesn’t take a rocket scientist to realize that we are short by several thousand dollars. Continue Reading…

14 things you didn’t know Personal Capital® can do for you

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Personal Capital is a financial technology company that provides a range of financial services, including investment management, retirement planning, and financial planning through its website and mobile app. The company also provides personalized financial advice from certified financial advisors. But what exactly can Personal Capital do for YOU? 

We reached out to 14 Personal Capital clients and asked them this question –  “What are the most helpful things you didn’t know Personal Capital could do for you?” From how easy it is to plan retirement to getting multiple credit lines, here are 14 helpful things that Personal Capital can do for you: 

  • Easily Plan Retirement
  • Create and Manage a Budget
  • Provide Educational Resources
  • Guidance for Investment Portfolio Management 
  • Clearly Describe Your Asset Allocation
  • Track Spending
  • Analyze Investment Fees
  • Help to Maximize Retirement Savings
  • Breakdown Your Holdings Accurately
  • Generate a Tax-Optimized Investment Plan
  • Earn a 3.85% APY
  • Show Debt Paydown Progress
  • Monitor Student Loans
  • Grant Access to Two Lines of Credit

Easily Plan Retirement

Using Personal Capital has been of enormous help. I did not know I could plan or budget for my retirement until I read a post that said, “I am a retiree, and I can say that Personal Capital has made this retirement journey smooth for me as I began planning my retirement with the app seven years before I retired.” 

After reading this post, I started making my retirement plans using Personal Capital, which has been very pleasant and put me at ease. Personal Capital is an excellent tool for planning your retirement because it provides a retirement calculator that helps you track your long-term saving goals, an investment checkup tool that will tell how well your portfolio is performing, and a fee analyzer to track if your investment account loses money to hidden fees. 

Overall, I would say that the platform is very comprehensive, well thought out, and intuitive to use, making it even more appealing. — Peter Bryla, Community Manager, ResumeLab

Create and Manage a Budget

Personal Capital can help you create and manage a budget. With just a few clicks, you can quickly set up your budget categories, track and monitor your spending, and make adjustments as needed. You’ll be able to see where your money is going, how much you’re making each month, and what areas of your life could use improvement. 

Plus, you can set up reminders to ensure you stick to your budget, as well as get alerts if you exceed it. This way, you’ll have a better understanding of your overall financial picture and be able to make informed decisions about where to allocate your resources. — Amira Irfan, Founder & CEO, A Self Guru

Provide Educational Resources

An added benefit of the Personal Capital system is the immense library of resources on personal finance. Financial literacy is one of the few things you don’t get to learn about in school, but it applies to everyone. 

Even with very little knowledge about personal finance, you can learn through Personal Capital’s resources. You can find articles on retirement planning, understanding 401K plans, investment metrics, and more. This is a great tool for people who don’t know how to manage their finances but are looking to learn. — David Ring, Sr. Marketing Manager, MCT

Guidance for Investment Portfolio Management 

One thing that I recently learned about Personal Capital is that they offer investment portfolio management services

I think this is a really helpful feature for those who may not have a lot of experience with investing or who want professional guidance in managing their portfolio. With Personal Capital, you’ve got a team of advisors and some fancy technology on your side, helping you make informed decisions about your investments. And on top of that, they offer personalized recommendations based on individual goals and risk tolerance.

So in my opinion, it’s a great resource for anyone looking to make the most of their money. — Tiffany Homan, COO, Texas Divorce Laws

Clearly Describe your Asset Allocation

The analysis provided by Personal Capital on my asset allocation is far more thorough and precise. Did you realize, for instance, that VTSAX comprises 3% to 4% REITs? When I looked at Personal Capital’s blocky breakdown of what I actually invested in, I learned this. 

This tool not only examines broad categories but also allows you to click on any specific block to view a breakdown of that category. The US stock market now comprises a large-cap core, mid-cap growth, small-cap value, etc. Your overseas allocation is broken down similarly, and it will change daily based on your present holdings and the changing holdings of those holdings. — Steve Pogson, Founder & E-Commerce Strategy Lead, First Pier

Track Spending

Personal Capital is a useful tool that can track all of your spending in one place. I didn’t know this at first, but it makes sense. It syncs all of your checking account and credit card data in one place, so you have easy access to all of your financial information. 

Tracking your spending is a vital part of achieving financial stability and independence. Once you know your normal spending habits, you’ll be able to change them to achieve your financial goals, such as making a large purchase or going on that vacation you’ve always wanted. You can even create your own categories for expenditures if you don’t find a predetermined category that matches your needs. — Dustin Ray, Co-CEO & Chief Growth Officer, Incfile

Analyze Investment Fees

Personal Capital is a tool with many capabilities. The ability to analyze investment fees is one of the most surprising benefits of this tool. People don’t always think about the investment fees that they’ll need to pay when they’re looking into expanding their portfolios. 

Personal Capital has a built-in fee analyzer so you can get more out of your returns. It’s estimated that, on average, approximately 1% of returns are lost to fees. Personal Capital can ensure that you minimize that loss so that you can get the most out of your investments. This tool can analyze many investment accounts, from 401(k)s to Roth IRAs. — Alex Mastin, CEO & Founder, Home Grounds

Help to Maximize Retirement Savings

One thing that Personal Capital can do for me I didn’t know is that it can help me optimize my 401(k) plan. Personal Capital’s 401(k) Fee Analyzer tool suggests ways to reduce fees and improve returns. This can be useful if you have an employer-sponsored 401(k) plan and are looking to maximize your retirement savings. 

I recently learned that Personal Capital offers a retirement planner that helps users determine how much they need to save for retirement and provides recommendations for investments and saving strategies. — Karen Cate Agustin, Business Analyst, Investors Club

Breakdown your Holdings Accurately

Compared to using a spreadsheet, Personal Capital’s breakdown is much more thorough and accurate. This tool not only examines broad categories but also allows you to click on any specific block to view a detailed breakdown of such a category.  — Connie Glover, General Manager, Product & Market Development, BFX Furniture

Generate a Tax-Optimized Investment Plan

Personal Capital can help you create and manage an investment portfolio tailored to your individual goals and risk profile. The technology uses sophisticated algorithms to identify the best investments for your situation, taking into consideration your current savings rate, expected returns, taxes, fees, and more.  Continue Reading…