Tag Archives: Financial Independence

Wealth & Happiness, Part 2: Happiness is a Thought and can be changed

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By Warren MacKenzie, for Canadian Moneysaver

Special to the Financial Independence Hub

In Part One of this series we mentioned how ‘living in the moment’ — that is being free of ideas of self and the things we wish for — is an opportunity for happiness.

In this part we will first explain how happiness comes from our thoughts, not our financial circumstances, and how making money usually generates more happiness than spending it does. We will then look at how money can buy happiness when you give it away, and how it’s not enough to manage money wisely: we also have to use our money wisely.

For example, let’s imagine two people with the same size investment portfolio living in almost identical apartments. In one case, the individual who may have experienced a windfall is overjoyed to be living on his or her own, while the other person, who may have suffered a financial loss, is sad and embarrassed to now be living in such a small apartment. One person is happy and one is sad. The difference is not based on their different circumstances it is entirely based on their thoughts about their situation.

In his book, The Art of Happiness, Dalai Lama says, “Once basic needs are met – the message is clear: We don’t need more money, we don’t need greater success or fame, we don’t need the perfect body or the perfect mate – right now, at this very moment, we have a mind, which is all the basic equipment we need to achieve complete happiness.”

Overcoming challenges

For most successful people, it’s their accomplishments that gives them the greatest happiness, whether that includes looking after their family, accumulating wealth, or showing resilience and problem solving through difficult situations. Successful people know that a happy life is not a life without problems or negative circumstances: rather it is one where we have the opportunity to overcome challenges and problems.

It’s important to realize that most often, the greater the challenge, the greater the happiness that comes from overcoming it. If parents make things so easy for their children that they never have to work hard and learn to overcome challenges, (including financial challenges) their children may not develop the positive self-image and confidence that comes from solving problems and creating their own financial security. Continue Reading…

Is early retirement in your future?

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By Scott Evans

Special to the Financial Independence Hub

We traditionally think of 65 years old as the standard age for retirement, but wouldn’t it be nice to make an earlier exit from the workplace? Many of us dream of an early retirement to be able to spend more of our valuable time with family, on hobbies, volunteering or on other pursuits.

One of the more unexpected outcomes of the pandemic has been a growing trend of younger retirees. Many Canadians have taken time over the past 18 months to think about and re-evaluate their priorities. Have you been thinking about your retirement goals and whether it is possible to retire earlier than you originally planned? If you are one of those people, read through for some tips on how to get closer to your goal.

1 .) Spend less to save more

The easiest way to increase savings is to cut back on your spending. The earlier you can start saving, the more you benefit from compounding returns over the long-term. Your future self will thank you! Cutting back on impulsive or discretionary purchases now, may be the trade-off for the financial independence you are seeking. It will also create better spending habits for your retirement years, and may in fact lead to a more fulfilling life.

2.)  Start Planning

Saving early only helps if you are generating a return on your savings. Keeping money under a mattress or in a savings account will result in you losing purchasing power to inflation each year. You will want to make sure you are not only investing using appropriate financial instruments for your goals, but also holding those investments in the appropriate accounts to maximize growth and to avoid losing money to taxes. To connect your savings with your early retirement goal, it’s essential to plan for how much you’ll need in order to retire and to have a plan on how to draw down those assets tax efficiently.

3.)  Play defense

Saving and investing are strategies that will help you grow your wealth; you will also want to consider strategies that can help protect your income and your savings. Insurance can protect you from unexpected health events that may otherwise cause a loss of income or significant expenses. Having an emergency fund set up is essential to help you get through job loss or another unexpected event that could derail your planning.

4.)  Be tax efficient

Investing inside a TFSA (Tax Free Savings Account) will allow your contributions to grow tax-free and be withdrawn without any tax consequences. This works differently than an RRSP (Registered Retirement Savings Plan) contribution, which is tax-deductible in the year you make the contribution but will be taxed on withdrawal (hopefully at a lower tax rate if you have planned well). Taking advantage of both of these plans with appropriate investments will play a big part in your success, as it will reduce the amount of tax you pay each year and allow your returns to grow tax sheltered. Be aware of your contribution limits for both of these plans and make your contributions early. Continue Reading…

The six phases of financial independence [Revisited]

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By Mark Seed, myownadvisor

Special to the Financial Independence Hub

I’ve recently updated this post to include more links to related content. I hope you enjoy it. 

The term “financial independence” has many meanings to many people.

To some, it means not working at all.

To others, financial independence covers all needs and many wants.

To others still, it means the ability to work on your own terms.

Where do I stand on this subject?

This post will tell you in my six phases to financial independence.

Retirement should not be the goal, financial independence should be

Is retirement your goal?

To stop working altogether?

While I think that’s fine I feel the traditional model of retirement is outdated and quite frankly, not very useful.

As humans, even our lizard brains are smart enough to know we need a sense of purpose to feel fulfilled.  Working for decades, saving money for decades, only to come to an abrupt end of any working career might work for some people but it’s not something I aspire to do.

With people living longer, and more diverse needs of our society expanding, the opportunities to contribute and give back are growing as well. To that end, I never really aspire to fully “retire” – cease to work.

Benefits of financial independence (FI)

In the coming years, I hope to realize my desired level of financial independence.

We believe the realization of FI will bring about some key benefits:

  1. The opportunity to regain more control of our most valuable commodity: time.
  2. Enhanced opportunities to learn and grow.
  3. Spend extra money on things that add value to your life, like experiences or entrepreneurship.

Whether it’s establishing a three-day work week, spending more time as a painter, snowboarder, or photographer, or whatever you desire – financial independence delivers a dose of freedom that’s hard to come by otherwise.

More succinctly: financial independence funds time for passions.

FI concepts explained elsewhere

There are many takes on what FI means to others.

There is no right or wrong folks – only models and various assumptions at play.

For kicks, here are some select examples I found from authors and bloggers I follow.

  • JL Collins, author of The Simple Path to Wealth, popularized the concept of “F-you money”. This is not necessarily financially independent large sums of money but rather, enough money to buy a modest level of time and freedom for something else. I suspect that money threshold varies for everyone.
  • Various bloggers subscribe to a “4% rule”* whereby you might be able to live off your investments for ~ 30 years, increasing your portfolio withdraws with the rate of inflation.

Recall the rule:

*Based on research conducted by certified financial planner William Bengen who looked at various stock market returns and investment scenarios over many decades. The “rule” states that if you begin by withdrawing 4% of your nest egg’s value during your first year of retirement, assuming a 50/50 equity/bond asset mix, and then adjust subsequent withdrawals for inflation, you’ll avoid running out of money for 30 years. Bengen’s math noted you can always withdraw more than 4% of your portfolio in your retirement years however doing so dramatically increases your chances of exhausting your capital sooner than later.

In some ways, the 4% rule remains a decent rule of thumb.

Are there levels of FI?

For some bloggers, the answer is “yes”:

  • Half FI – saved up 50% of your end goal (e.g., $500,000 of $1M).
  • Lean FI – saved up >50% of your end goal; income that pays for life’s essentials like food, shelter and clothing (but nothing else is covered).
  • Flex FI – saved up closer to 80% of your end goal (e.g., $800,000 of $1M). This provides financial flexibility to cover most retirement spending including some discretionary expenses.
  • Financial Independence (FI) – saved up 100% of your end goal, you have ~ 25 times your annual expenses saved up whereby you could withdraw 4% (or more in good markets) for 30+ years (i.e., the 4% rule).
  • Fat FI – saved up at or > 120% of your end goal (in this case $1.2M for this example), such that your annual withdrawal rate could be closer to 3% (vs. 4%) therefore making your retirement spending plan almost bulletproof.

There is this concept about “Slow FI” that I like from The Fioneers. The concept of “Slow FI” arose because, using the Fioneers’ wording while “there were many positive things that could come with a decision to pursue FIRE, but I still felt that some aspects of it were at odds with my desire to live my best life now (YOLO).”

They went on to state, because “our physical health is not guaranteed, and we could irreparably damage our mental health if we don’t attend to it.”

Well said.

My six phases of financial independence

With a similar line of thinking related to Slow FI, since we all have only one life to live, we should try and embrace happiness in everything we do today and not wait until “retirement” to find it.

After reviewing these ideas above, among others, I thought it would be good to share what I believe are the six key phases of any FI journey – including my own.

Phase 1 – FI awakening. This is where there is an awareness or at least an initial desire to achieve FI even if you don’t know exactly how or when you might get there.

FI awakening might consider self-reflection questions or thoughts like the following:

  • I would love to retire early or retire eventually…
  • I can never seem to get off this credit card treadmill…
  • I wish I had some extra money to travel…
  • Wouldn’t it be nice to buy X guilt-free?

(I had my awakening just before I decided to become My Own Advisor, triggered by the financial crisis of 2008-2009.)

Phase 2 – FI understanding. This is the phase where people are getting themselves organized; they start to diligently educate themselves on what their personal FI journey might be.

In this phase, they might set goals or get a better handle on what goes into their financial plan. Even if your plan is not perfect, it’s a start.

They might start asking some deeper questions like:

  • Why is money important to me?
  • What is my money for?
  • How do I know I’m doing it right?

I would say it took me until my mid-30s to get my financial life in order through more financial education and improved financial literacy. It was a process that took a couple of years although I’m always continuously learning and improving. I don’t pretend to know it all.) Continue Reading…

XEQT Review: An iShares All-Equity ETF Analysis

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By Bob Lai, Tawcan

Special to the Financial Independence Hub

A while ago, I wrote a VEQT review where I performed a thorough and deep analysis of the Vanguard All-Equity ETF. While I really like VEQT, we ended up buying XEQT for our kids’ RESPs due to a few key reasons. The beauty of a one-fund solution ETF such as the iShares All-Equity ETF (XEQT) means there’s no need to re-balance regularly. This makes it a very straightforward and simple investment approach. More importantly, the all-in-one ETFs provide instant asset class diversification and geographical diversification, all for a very low management fee.

Vanguard and iShares are two of the most well established and most trusted ETF companies in the world. Both companies offer similar all-equity ETFs – VEQT and XEQT, respectively. Lately, when I’m coaching clients new to investing, I’d typically recommend XEQT to them because of the lower MER fee compared to VEQT.

Although XEQT is great for beginner investors, this all-equity ETF is just as good for experienced investors. This ETF definitely has a place in most investors’ portfolios.

Having written a VEQT review, I figured I needed to write a similar review for XEQT so readers can compare the two side-by-side.

Table of Contents
iShares All-Equity ETF – XEQT
XEQT Fees
XEQT Underlying Holdings
XEQT Top 10 Market Allocation
XEQT Top 10 Holdings

XEQT Sector Exposure

XEQT Returns
XEQT Distributions
Foreign Withholding Tax with XEQT
XEQT Review – Pros and Cons of XEQT
Pros of XEQT
Cons of XEQT
XEQT vs. VEQT

iShares XEQT vs. Other iShares ETF Funds

XEQT vs. XGRO
XEQT vs. XIC
XEQT vs. XAW
XEQT vs. ITOT
Who should buy XEQT?
Summary – XEQT Review

iShares All-Equity ETF – XEQT

The iShares All-Equity ETF Portfolio, XEQT, holds 100% in equity. This means that the ETF holds no bonds. iShares have several all-in-one ETFs and XEQT falls in the more volatile, riskier spectrum of all the all-in-one ETFs because XEQT holds 100% in stocks.

XEQT seeks to provide long-term capital growth by investing primarily in one or more exchange-traded funds managed by BlackRock Canada, or an affiliate that provides exposure to equity securities. Just like its counterpart all-in-one ETFs, iShare All-Equity ETF trades on the Toronto Stock Exchange under the ticker name “XEQT” and is traded in Canadian dollars.

XEQT is a relatively new ETF. It was created in Aug 2019. Some key facts of XEQT:

  • Inception Date: Aug 7, 2019
  • Eligibility: RRSP, RRIF, RESP, TFSA, DPSP, RDSP, taxable
  • Dividend Schedule: Quarterly
  • Management Fee: 0.18%
  • MER: 0.20%
  • Listing Currency: CAD
  • Exchange: Toronto Stock Exchange
  • Net Asset: $595.48M
  • Number of holdings: 4
  • The number of stocks: 9,444

XEQT Fees

XEQT has a management expense ratio (MER) of 0.20%, which is 0.05% lower than VEQT. While 0.05% may not seem a lot, if your portfolio value is $250,000, it means $125 in fees each year. While it’s not an enormous amount of money when your portfolio is that big, it adds up eventually.

One thing to note is that the all-in-one and all-equity ETFs that Vanguard, iShares, and other ETF companies all have very low management fees. These management fees are typically much, much lower than the MER on the typical mutual funds available to Canadians. The low MER is one of the key reasons why index ETFs are excellent investment options for Canadians.

If you use a discount broker like Questrade, you can buy ETFs commission free. This would reduce your overall transaction cost significantly. If you use Wealthsimple, you can also buy ETFs commission free.

Check out my Questrade vs. Wealthsimple Trade review to see which discount broker is best for you.

XEQT Underlying Holdings

Like other iShares all-in-one ETFs, XEQT holds four iShares ETFs which means that XEQT holds 9,033 stocks. The underlying holdings are:

  • iShares Core S&P Total US Stock (ITOT) – 48.02%
  • iShares MSCI EAFE IMI Index (XEF) – 24.39%
  • iShares S&P/TSX Capped Composite (XIC) – 22.71%
  • iShares Core MSCI Emerging Markets (IMEG) – 4.64%

The rest of the portfolio holds USD and CAD cash and/or derivatives.

XEQT Top 10 Market Allocation

Here is XEQT’s top 10 market allocation.

  • US: 47.13%
  • Canada: 23.79%
  • Japan: 5.37%
  • UK: 3.08%
  • Switzerland: 2.25%
  • France: 2.23%
  • Germany: 1.92%
  • Australia: 1.84%
  • China: 1.74%
  • Netherlands: 1.27%

The exposure to each country will vary month over month but the variations are typically in the fractions of a percentage. XEQT has a much higher exposure to the US market compared to VEQT. While XEQT has 8.89% exposure to other markets, iShares did not provide such information on the website. Continue Reading…

Overlooked retirement income and planning considerations

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By Mark Seed, MyOwnAdvisor

Special to the Financial Independence Hub

I’ve updated this retirement income planning post to reflect some current thoughts. Check it out!

I’ve mentioned this a few times on my site: there is a wealth of information about asset accumulation, how to save within your registered and non-registered accounts to plan for retirement. There is far less information about asset decumulation including approaches to earn income in retirement.

Thankfully there are a few great resources available to aspiring retirees and those in retirement – some of those resources I’ve written about before.

Retirement income and planning articles on my site:

One of my favourite books about generating retirement income is one by Daryl Diamond, The Retirement Income Blueprint. 

An article about creating a cash wedge as you open up the investment taps.

A review about The Real Retirement.

These are six big mistakes in retirement to avoid.

A review of how to generate Retirement Income for Life.

This is my bucket approach to earning income in retirement.

Here are 4 simple ways to generate more retirement income.

Can you have too much dividend income? (I doubt it!)

Other resources and drawdown ideas:

Instead of focusing on the 4% rule, you can drawdown your portfolio via Variable Percentage Withdrawal (VPW).

A reminder the 4% rule doesn’t work for everyone. Some people ignore the 4% rule altogether.

Getting older but my planning approach stays the same

As I get older, I’m gravitating more and more this aforementioned “bucket approach” for retirement income purposes. This bucket approach consists of three key buckets in our personal portfolio to address our needs:

  • a bucket of cash savings
  • a bucket of dividend paying stocks
  • a bucket of a few equity Exchange Traded Funds (ETFs).

My Own Advisor Bucket Approach May 2019