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).

Financial Management Simplified

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By Fauzi Zamir, CPA, CA

Special to Financial Independence Hub

I have diabetes so I am careful about eating sugary foods.  In this short statement lies the secret of simple financial management.  You may say that’s an odd conclusion, but you will shortly see the principles underlying the analogy in the first sentence and its applicability to your finances.

The first element (I have diabetes) is “knowing” that I have a problem and the second element (I am careful about eating sugary foods) is “doing something about it.”  In the same way, financial management requires that you first know what you own, what you owe, and what your cash inflows and outflows are.  The second thing is to determine which debts to pay off first and which discretionary expenses you can reduce: in other words, you want to reduce your expenses so that you can generate savings that can subsequently be invested.

Let’s use another analogy.  I need to get in shape.  I enthusiastically join a club and start going regularly.  But soon I am overwhelmed by the choice of machines and different exercises and my visits start to decline and eventually stop.  What happened?  I was probably over ambitious, didn’t have the discipline and made it overly complicated.  I could have taken a simpler approach by focusing first on my diet and then doing something simple like regular walking to create the sustained discipline  that is needed for long-term results.  The message here is, start with something simple and sustain the routine. Continue Reading…

Why you may wish to own a U.S. Dollar Investment Account

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Royalty-free image courtesy Justwealth

By James Gauthier

(Sponsor Blog)  

 

Many Canadians are aware that you can open a U.S. dollar bank account at most Canadian financial institutions.

But did you know that you can also open a U.S. dollar investment account through many different investment companies?

The following are reasons why you may wish to consider opening a U.S. dollar investment account.

 

Reduce the cost of U.S. dollar conversion

Every time that you convert Canadian dollars to U.S. dollars (or vice versa), you will pay a fee to the financial institution that makes the conversion for you. That fee is known as the currency spread, and can usually be noticed by looking at the difference between the “bid” and the “ask” prices displayed by the financial institution.

For example, if the current spot exchange rate is quoted as $1.35 Canadian for each U.S. dollar, the bid (or price that you will receive for selling U.S. dollars) might be $1.32 and the ask (or price that you must pay to purchase U.S. dollars) might be $1.38. So, every time you buy or sell U.S. currency you lose 3 cents per dollar. If you are regularly converting currency, that becomes very expensive!

Buying or selling U.S.-listed securities in a Canadian dollar investment account is a common example of Canadians paying unnecessary currency conversion costs, allowing the broker to pocket the currency spread on buys and sells, dividends or interest paid. The more that you buy and sell, the more that you lose. These costs can be eliminated by simply owning your U.S.-listed securities in a U.S. dollar investment account instead since there is no need to convert currency on every transaction.

Hedge the impact of currency exchange rates

Have you ever felt like you had to limit your spending on travel to the U.S. because the value of the Canadian dollar was depressingly low? Or how about not ordering that item located in New York on eBay because it was priced in U.S. dollars which made it too expensive? The value of the Canadian dollar relative to the U.S. dollar has fluctuated greatly over time. In the past few decades alone, the exchange rate has ranged from more than $1.60 Canadian per U.S. dollar to less than $1.00 – yes, the Canadian dollar has on occasion been worth more than the U.S. dollar!

But why leave it to chance? If you have a portion of your investments denominated in U.S. dollars, you can always draw from it when you need it. You won’t pay conversion costs, and the current exchange rate should not matter because you don’t have to convert anything. For folks who require the frequent use of U.S. dollars for business, travel, or shopping, a U.S. dollar investment account can make a lot of sense.

For a simple illustration, consider a shrewd Canadian investor who vacations in Orlando, Florida for one week in February every year. The typical expense for this trip each year is about $5,000 U.S. dollars. This investor opened a U.S. dollar investment account and invested $100,000 U.S. dollars in an income-oriented investment portfolio that consistently earns 5% per year. This investor should never have to worry about exchange rates, or conversion costs since $5,000 U.S. dollars can easily be withdrawn every year!

Eliminate PFIC reporting (for U.S. citizens living in Canada)

Unfortunately for U.S. citizens living in Canada, Uncle Sam requires you to continue filing U.S. income tax returns. Also unfortunately, the I.R.S. requires additional reporting requirements for Passive Foreign Investment Corporations (PFICs), which may result in additional taxes owing. If you own any mutual fund or exchange traded fund issued by a Canadian company, it is considered a PFIC. Regulations require that all mutual funds purchased in Canada, must be issued by a Canadian company. Unless you enjoy the extra reporting requirements, this can be problematic for some investors. Continue Reading…

Creating your own Podcast Studio: A Step-by-Step Guide

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Image courtesy Canada’s Podcast/unsplash royalty free

By Philip Bliss

Special to Financial Independence Hub

In the ever-expanding world of podcasting, creating a professional and efficient podcast studio is essential for producing high-quality content that captivates your audience.

Whether you’re a seasoned podcaster or just starting out, building a dedicated podcast studio can elevate your production value and enhance the overall podcasting experience.

In this guide, we’ll walk you through the essential tasks, equipment, and strategies to not only set up your podcast studio but also effectively promote your podcast.

 

 

 

Tasks

  1. Define Your Niche and Audience:
  • Identify your target audience and the niche you want to focus on.
  • Research competitors in your niche and understand what sets your podcast apart.
  1. Create a Content Plan:
  • Develop a content calendar outlining topics, guests, and episode release schedule.
  • Plan for regular, engaging content to keep your audience coming back.
  1. Design Your Studio Layout:
  • Choose a quiet and dedicated space for your podcast studio.
  • Consider acoustic treatment to minimize echo and external noise.
  1. Invest in Quality Recording and Editing Software:
  • Choose reliable recording software like Audacity, GarageBand, or Adobe Audition.
  • Invest time in learning the basics of audio editing for polished episodes.
Image courtesy Canada’s Podcast/unsplash royalty free

Equipment

  1. Microphone:
  • Invest in a high-quality microphone like the Shure SM7B or Blue Yeti.
  • Consider a pop filter and shock mount to enhance audio clarity.
  1. Headphones:
  • Choose closed-back headphones to prevent audio leakage during recording.
  • Opt for comfortable and studio-grade headphones like Audio-Technica ATH-M50x.
  1. Audio Interface:
  • Select a reliable audio interface such as Focusrite Scarlett 2i2 for clear audio signal processing.
  1. Mixing and Monitoring Equipment:
  • Include a mixer if you plan to have multiple hosts or guests.
  • Invest in studio monitors for accurate sound monitoring.
  1. Recording Accessories:
  • Use a sturdy microphone stand or boom arm for convenience.
  • Consider a portable vocal booth or isolation shield for noise reduction.

Promotion Strategies: Continue Reading…

Bitcoin & Cryptocurrencies: Still not an asset class to which investors need to pay attention

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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…

Why Debt-to-Market-Cap matters more than Debt-to-Equity

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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…