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).

Why this blogger doesn’t invest in Canadian Dividend ETFs [An oldie but goodie from 2019, updated for 2023]

Posted By Financial Independence Hub | July 5, 2023

By Mark Seed, myownadvisor

Special to Financial Independence Hub

It’s fun to look back and see how things change…or not. :)

Fans of this site, including many long-time readers and investors who enjoy this site, continue to tout the benefits of low-cost investing to others … I do too … but I still don’t invest in any Canadian Dividend ETFs.

That’s because when it comes to investing I believe you often get what you don’t pay for.

One way to reduce your investment fees, is to own lower-cost dividend ETFs but that doesn’t mean such funds are automatically suited for you and your approach.

In this updated post, I remind readers why I like some low-cost ETFs, why I own a few in my portfolio but when it comes to investing in Canada I’ve decided to build my own ETF per se.

I wrote about this in 2011. Yup, that long ago. I updated that post in 2017. And, it’s now 2023.

Learn how things change or what stays the same in this updated post and share your own story or comment about stocks or ETFs held for many years in a comment on the site. I read every comment and I try to answer every one of them as well.

Read on: Why I (still) don’t invest in Canadian Dividend ETFs.

Why I don’t invest in Canadian Dividend ETFs

Fans of this site, including many long-time readers and investors who enjoy this site, continue to tout the benefits of low-cost investing to others…but I still don’t invest in any Canadian Dividend ETFs.

That’s because when it comes to investing I believe you often get what you don’t pay for.

One way to reduce your investment fees, is to own lower-cost dividend ETFs.

In fact, here are some of the great benefits that come from investing in dividend ETFs beyond just ETF distribution income:

Transparency – within a few taps of my phone I can see what every single holding is in these funds. I can also read up on the fund’s prospectus to learn how fund turnover is managed and how often. Portfolio turnover within the fund costs money – someone needs to get paid! That brings me to my next point below.
Modest fees – you might recall, active fund management costs more because money managers are paid to perform. A pay for performance mandate encourages the mutual fund money manager to buy and sell stocks frequently in an attempt to beat the market or the index they are tracking. Fund management, buying and selling, incurs time and resources. Time is money. Those costs are passed on to you. Instead of this model, I think investors should strive to invest in a low-cost ETF that follows a reputable, established, broad market index such as the S&P/TSX Composite Total Return Index or for dividend investors in Canada, an established dividend-oriented index such as:
- S&P/TSX 60 Index (my favourite – see low-cost ETF from iShares XIU), or
- S&P/TSX Composite High Dividend Index, or
- FTSE Canada High Dividend Yield Index.
Lower effort – if you’re going to invest in some individual stocks, you need to spend some time understanding these companies and understanding what you own, why you own it. I read a few annual reports every year and follow metrics like yield, payout ratio, earnings per share, cash flow to name a few. Dividend ETFs don’t have this complexity – they bundle all these companies together for you.

There are certainly many benefits to owning Canadian dividend ETFs…but I still don’t invest in any of these Canadian funds.

Read on in this updated post…

Why I don’t invest in Canadian Dividend ETFs

Here are my reasons why:

1. I built my own Canadian Dividend ETF.

Many years ago, I learned there is merit to owning the same Canadian stocks the big funds own – so I started that process. I’ve never looked back.

In 2011 and updated again in 2017, I went so far as to say Canadian dividend stock selection could be made easy.

Here is one quick example – look at this RBC Canadian Dividend Fund in 2011:

And now the same fund’s top fund holdings as of April 2017:

And what does the RBC Canadian Dividend Fund own in 2023?

Lots of differences eh? (Images courtesy of RBC’s site.)

Source: https://www.rbcgam.com/en/ca/products/mutual-funds/RBF266/detail

Let’s look at another example and pick on one of my favourite ETFs: XIU.

Now, again, if you don’t want to buy and hold certain stocks, nor try and create your own Canadian Dividend ETF like I have, then no problem. This fund is arguably one of the best ETFs to own in Canada.

(I recall iShares XIU was one of the world’s first ETFs.)

XIU holds the largest of the largest Canadian companies. My perspective is, if collectively the largest 60 companies in Canada aren’t making money year-over-year, nobody is.

This ETF has provided strong Canadian market returns over the last decade and remains a great choice for your indexed portfolio should you decide to go that route.

Here are the top holdings from XIU, from April 2017:

And as of April 2019:

And what does low-cost XIU in 2023?

XIU ETF June 2023

Humm, not too many changes. Something to consider…

2. I control the portfolio turnover (which is largely non-existent)!

I can count on my hands how many stocks I’ve bought then sold over the last 15 years. Yes, full disclosure, I have sold a few stocks over the years. I believe that comes with the DIY investor territory.

However, for the most part, instead of buying and selling any stocks including Beat the TSX stocks, I buy and hold and reinvest dividends for higher income over time.

You can see how that (boring) approach is working out for me below. Continue Reading…

The Four-year Rule: One of the Must-Know Stock Trading rules for Beginners

Posted By Pat McKeough | July 4, 2023

Are you interested in stock trading rules for beginners? The “four-year” rule is an important one to understand for growing your profits

Are you interested in stock trading rules for beginners? Most “market rules” turn out to be demonstrations of the fact that random events tend to occur in bunches. The “research” they grow out of generally consists of studying statistics until you find start-and-end dates of periods when a hypothetical indicator would have paid off.

In most cases, if you change the start and/or end dates, the market rules/indicators lose their advantage or go into reverse. Even if you stick with the same start and end dates, the indicator will still go into reverse eventually.

However, the four-year rule is an exception among other stock trading rules for beginners. That’s because it’s based on events that tend to recur in predictable phases of the four-year U.S. Presidential term.

Some statistics are worth a close look

From the election of Andrew Jackson in 1832 till the election of Donald Trump in 2016, the U.S. has gone through 47 complete four-year Presidential terms.

In the first years of each of these 47 four-year presidential terms (starting with the year after the Presidential Election year) the average result for the U.S. stock market was a gain of 3%.

In the second years (the mid-term election years), the annual gain averaged 4.0%. The average result for the third years (the pre-Presidential Election years) was a 10.4% gain. The average for the fourth years (the Presidential Election years) was a gain of 6.0%. (Source: Stock Traders Almanac 2022.)

This pattern probably comes about because of a couple of unchanging things about most U.S. Presidential Elections:

First, most U.S. political office holders, regardless of party, want to get re-elected, or pave the way to the election of a successor from their own party.
Second, U.S. Presidential Elections bring out many “swing voters” who might not bother to vote in less important elections. They tend to get interested in the Presidential Election because of the torrent of attention it inspires, in the media and in day-to-day conversation.

That’s why newly elected or re-elected presidents often introduce unpleasant necessities in the first year or at least first half of the term. (The best recent example is the need President Trump felt to confront China early in his term.) Swing voters (or voters generally, for that matter) will have had time to get over the shock of the news before the next Presidential Election. In fact, the unpleasant necessities of the first half of the term may have begun paying dividends by the second half. Continue Reading…

Using ETFs for International Investing

Posted By Financial Independence Hub | June 30, 2023

By Erin Allen, VP, Online Distribution, BMO ETFs

(Sponsor Content)

As an investor, diversification is crucial to reducing risk and achieving long-term growth. International investing is a great way to diversify your portfolio, but it can be challenging for Canadians to navigate the complex world of foreign stocks and currencies. One solution is to use exchange-traded funds (ETFs) for international investing.

Benefits

There are many advantages to using ETFs for international investing. First, they provide exposure to a broad range of international markets, including developed and emerging markets. This diversification can help reduce risk (when one market zigs and another zags) and increase returns over the long term.

Second, ETFs are typically more cost-effective than other forms of international investing. They have lower fees than traditional mutual funds, and you can invest in them for no commission at many online brokerages in Canada.

Third, ETFs provide transparency and ease of access. You can easily track the performance of your international ETFs and adjust your portfolio as needed. Additionally, most ETFs are denominated in Canadian dollars, so you don’t have to worry about currency conversion fees or fluctuations.

Considerations

Currency: Currency returns are an important factor impacting investors purchasing a non-Canadian asset. Foreign currency fluctuations can affect the total return of assets bought in that currency when compared to the Canadian dollar. ETF providers offer both hedged and unhedged options, giving Canadian investors more tools to efficiently execute their investment strategies. The objective of currency hedging is to remove the effects of foreign exchange movements, giving Canadian investors a return that approximates the return of the local market. Continue Reading…

Why digital transformation is critical for the smooth transition of newcomers to Canada

Posted By Financial Independence Hub | June 28, 2023

By Hamed Arbabi, VoPay

Special to Financial Independence Hub

Canada welcomed over 400,000 new immigrants in 2022, and that number is only expected to increase in 2023 with up to 505,000 new permanent residents.

These record immigration goals require critical planning from a workforce management perspective and should prompt employers to consider how digital transformation and embedded payment processing services can support the transition.

Organizations that intend to set new employees up for success must understand the responsibility to create a structure that supports financial inclusion: a vital consideration, especially amidst ongoing concerns of recession and inflation. If you are unfamiliar with the term financial inclusion, think of it as ensuring individuals have access to the tools and resources which enable them to have control over their financial health: a passion of mine as both a company founder and advocate for easy, affordable and accessible financial services.

Understanding the payment gap

For some of us, we have forgotten (or never experienced) the days of manually paying bills and waiting in line to cash a bi-weekly pay cheque; we’ve discounted the luxuries we have adapted to over the years thanks to automated technology. However, there is a disproportionate number of individuals in Canada, including newcomers, who still need faster and easier access to funds.

It is estimated that 10 to 20 per cent of Canadians are “unbanked” or “underbanked,” meaning they are not accessing the banking services available to them. These Canadians are often from low-income households, specifically those living in remote communities, including Indigenous peoples, people with disabilities and newcomers to Canada.

This means that some newcomers are still relying on cheque-cashing services and payday loans to fund purchases, minimize time gaps between pay periods, and manage their finances. While this is a short-term solution, it poses long-term challenges as cheques are sometimes difficult to deposit, easy to lose and prone to theft. Further, funds are not available immediately, do not allow for online purchases and are heavily reliant on slow payment processing practices such as mail delivery.

How organizations are advancing payments

Across all sectors and businesses, the goal is to ensure all Canadians have control over their financial health. Savvy employers recognize that outdated payment methods, such as cheques, are slowing down economic operations and can cause challenges for the unbanked and the underbanked. In response to this, these organizations are ensuring they welcome new immigrants with real-time payments to help newcomers get “banked” and join the economic ecosystem in Canada.

I interview RetireEarlyLifestyle’s Billy and Akaisha Kaderli

Posted By Jonathan Chevreau | June 23, 2023

Billy & Akaisha in Mesa, Arizona; courtesy Kiplinger

Earlier this spring, I was interviewed by Billy and Akaisha Kaderli, the globe-trotting early retirees who run the RetireEarlyLifestyle.com website and authors of several books on Early Retirement.

You can find that interview on both our web sites: here’s the version from the Hub: RetireEarlyLifestyle.com interview on Financial Independence & the “Findependent” lifestyle.

And here is the same interview at RetireEarlyLifestyle.com.

Turnabout is fair play so today, I play interviewer and Billy and Akaisha are on the hot seat to answer.

Jon Chevreau: What do you think of the term FIRE [Financial Independence/Retire Early)? You made it there in your early 30s but can Millennials, Gen X and GenZ expect to replicate your success, given the high cost of housing and everything else?

Billy & Akaisha: FIRE is a great marketing acronym filled with energy and intrigue. There was no such term when we left the working world in 1991, 33 years ago. There really wasn’t even the mental concept of being “financially independent” except for perhaps well-paid athletes, actors and trust fund babies.

We called ourselves Early Retirees, but we never retired from life, just from the conventional idea of working until age 65 or when Social Security kicks in. We had other plans for ourselves like travel, volunteer work, creative projects and continuous learning. We’ve always been productive and we like that feeling of pursuing our passions.

As for whether or not Millennials, Gen X and Gen Z can expect to become financially independent, we would say yes.

It’s a matter of discipline, focus, being aware of one’s financial choices, and most definitely finding a partner who is on the same financial page.

We have explained many times in our books and on our website that the four categories of highest spending in any household are Housing, Transportation, Taxes and Food/Dining/Entertainment. Pare down your personal infrastructure or modify your cash outlay in those categories and you will find money to invest towards your future life of freedom.

So yes, we say it can still be done.

JC: How many countries have you now visited around the world and how long do you tend to stay in any one location? Related question: do you maintain a home base in the United States and how long (and which seasons?) do you stay there each year?

Billy & Akaisha Karderli in Sorrento, Italy, with Mount Vesuvius in background

Billy & Akaisha: For some reason we have never cared to count the number of countries we have visited or lived in. We travel for ourselves, not to tick off boxes or to compete with other travelers.

We have visited all throughout Europe, lived in many Asian and Pacific Rim countries, visited and lived in Canada, most of the United States, all throughout Mexico, Central America and Northern South America, and have sailed throughout the Caribbean Islands.

In the early decades of our vagabonding, we’d be gone years at a time. We made trips back to the U.S. yearly to see family for a few months at a time, but then we’d get our backpacks and world maps out again and hit the road.

We utilized Geo-arbitrage long before there was a name for that hack and found it to be one of the best financial moves we have ever made.

We do still own a manufactured home in a resort in Arizona. But while on this topic, we’d like to say that living in an Active Adult Resort Community in the U.S. has been one of the most affordable and socially satisfying options for housing we have implemented.

That being said, we have many Readers and Friends who prefer to house sit all over the world and that is their gold standard of housing choice to keep costs down.

These are two examples of modifying the category of Housing to positively affect your budget.

JC: I believe you took Social Security early. How much do you think average would-be retirees will be depending on that source of income?

Billy & Akaisha: In our case we planned our retirement as if we would not receive Social Security. We structured our portfolio to produce our needed income on its own. Now that we receive it, between dividends and SS we do not need to touch our portfolio, thus letting it grow. Continue Reading…