Tag Archives: Financial Independence

How investing makes it easier to achieve Financial Independence

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By Gary Bordeaux

Special to the Financial Independence Hub

If you are looking for a way to secure your financial future, learning how to invest your money can help accomplish that goal. There are a variety of investment vehicles that can be tailored to fit your needs, timeline, and risk tolerance.

Let’s take a look at some of the specific reasons how investing helps a person obtain financial independence (aka “Findependence”).

Make money both today and tomorrow

If you are interested in generating a steady income from your investment portfolio, you can buy dividend stocks or a REIT (Real Estate Investment Trust). You make money today by receiving a dividend payment every month or quarter. You make money in the future by holding the security as it appreciates in value. When it reaches what you feel is the height of its value, feel free to sell it and lock in a profit. It is also possible to hold stocks in a trust that can benefit children, grandchildren or other beneficiaries after you pass on.

Obtain returns greater than the Rate of Inflation

Thanks to inflation, a dollar that you hold in your hand today will be worth the equivalent of 98 cents a year from now. This is because the price of goods will increase by an average of 2 per cent per year. In some cases, inflation can reach 4 per cent or greater in a given 12-month period.

As a general rule, stocks will appreciate by about 7 per cent per year, and that amount is higher if a stock offers a dividend. What this means is that you are increasing your net worth above what it takes to keep up with cost-of-living increases. Over a period of years or decades, you could accrue tens or hundreds of thousands of dollars that can be used to enhance your lifestyle.

Improve your chances of owning a home

Let’s say that you are looking to buy your first house. You could decide to buy a single-family unit with a monthly mortgage of $1,000 that you are responsible for paying on your own. However, another option is to buy a duplex that you can both live in and derive income from. At the very least, having a tenant living in the other half of your home will decrease the monthly mortgage payment.

The money that you save can then be used to improve the home or make other investments. If you make improvements to a property that is used for rental purposes, it may be possible to write off the amount of those repairs on a state or federal tax return. Continue Reading…

This is Easy Street for Canadian investors

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By Dale Roberts

Special to the Financial Independence Hub

Investing is simple. We are all familiar with the KISS acronym. Simplicity is the key to successful investing. I have been reading and studying investing and investment strategies for decades and came to the conclusion that for the most part “nobody knows nothing.”

Great. All that research and tens of thousands of hours of study and I came back to the fact that I don’t need to know much at all. What a complete waste of time? No not at all. The thousands of hours of study showed me why I, we, don’t need to know much. We do not need to be experts when it comes to investing. As I like to write: It ain’t rocket surgery. Here’s how you find Easy Street.

What is an investment portfolio? In its basic form we can think of a portfolio as having two components: great companies for greater growth potential and bonds to manage the risk. Those bonds work like shock absorbers on the portfolio to reduce the risk or volatility. The more bonds in the portfolio, the lower the risk level of the portfolio.

A typical portfolio will hold great blue-chip companies (stocks) such as Apple, Google, Microsoft, Facebook, Johnson & Johnson, Berkshire Hathaway (Warren Buffett’s company), Coca-Cola and on and on. On the Canadian side we’ll hold Tim Hortons, the big Canadian banks, the telco companies such as Bell, Rogers and Telus, plus railroad companies such as CN and CP Rail and major energy players such as Suncor and Enbridge and on and on.

The rich are business owners

We know that the richest people on earth are usually business owners. We’re going to join them. We’re going to own a piece of those businesses. When enough of those companies do well, you do well. And certainly not every business is going to do well: that’s why you own a bunch of ’em. And that’s why you’ll own great companies in Canada, US and around the globe. And we don’t have to know how to analyze those companies, we can simply go and buy the ‘entire’ stock market. Here’s What is Index Investing and why it’s simply a superior form of investing. It’s so easy we call it Couch Potato Investing.

And back to risk or volatility. Certainly stock markets mostly go up over time, but they do correct or go down with regularity; it’s a normal and expected part of investing. For the potential of those 9-10% annual returns from stocks we need to accept some risk. Keep in mind that stocks can go down by 50% in major stock market corrections. That’s not everyone’s cup of tea to watch their investment portfolio get cut in half. That’s why many or most investors will need some bonds in the portfolio. Bonds are fixed-income investments and are typically less risky than stocks. A bond pays you a fixed payment on a regular basis and bonds can also go up in value when stocks go down – think teeter totter.

A portfolio with a very generous amount of bonds would have only decreased by about 10%-15% in the last major market correction. For the period of 2008 to end of 2009, here’s a comparison of the US stock market (S&P 500) as Portfolio 1, and a Balanced Portfolio as Portfolio 2.

We see that the all-stock portfolio declined by 50% while the Balanced Portfolio with a 70% bond component declined by just over 15%. By the end of 2009 that conservative Balanced Portfolio is almost back in positive territory while the all-stock portfolio still has more of that hill to climb.

Percentage in Bonds a critical decision

The most important decision that will be made, or the most important question answered will be “What percentage of bonds do you need?” What is your risk tolerance level? What roller coaster do you want to ride? You get to decide. Continue Reading…

Getting the best bang for your buck with everyday purchases

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By Sia Hasan

Special to the Financial Independence Hub

You work hard for your money, so it makes sense that you would want to stretch your dollar as far as possible. If you are like many other hard working adults, you may splurge here and there on a cup of coffee or a matinee movie. However, most of your take-home pay may go toward everyday or typical purchases. These may include food, gas, clothes and more.

It may seem challenging to stretch your dollar in these essential areas, but rest assured that there are several strategies you can employ to get the most bang for your buck. Before you make another purchase on regular or everyday items, consider how these tips can benefit you.

Choose your payment method carefully

The primary payment methods for standard purchases are cash or credit cards. Cash may be in the form of hard currency, checks or a debit card. Many people believe that paying with cash or a cash alternative is a smart option because it helps you avoid taking on expensive debt. It is true that debt can cost you money.

However, if you use credit cards responsibly, a credit card may be a better payment option. Consider that you can make all your regular purchases with a credit card, and you can pay the full balance off each month. Therefore, no interest is accrued, and there is not a cost for using the credit card. You may enjoy the benefit of bolstering your credit score with responsible use of your credit card. Keep in mind that higher credit scores may qualify you for a lower rate on a mortgage, a car loan, insurance rates and more. Therefore, this payment method can yield tremendous savings over time.

Take advantage of Credit Card Rewards

When you make purchases with credit cards regularly, you may also enjoy the additional benefit of earning rewards points. You can begin by searching for a good credit card for average credit and comparing rewards programs or opting into the rewards program on an existing account. Pay attention to the fine print as you compare programs. Some credit card rewards programs, for example, limit the points that you can earn within a specified period of time. Other programs require you to use the points within a certain period of time. These rewards may essentially give you cash back on your purchases, or the points may be redeemed for other items with financial value.

Shop around

Even when you take these steps to stretch your dollar, there may be other ways to save as well. Shopping around is easier to do than ever because of the Internet. Continue Reading…

Why we are taking Social Security at age 62

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By Billy and Akaisha Kaderli

Special to the Financial Independence Hub

We decided to take Social Security at age 62. We know there are as many ways to consider this decision as there are days in a year. And many experts advise against taking social security “early” so that you get a bigger check at full retirement age.

It is hard to argue against that.

We have always lived an unconventional lifestyle and the fact that so many experts agree on waiting for payment gives us pause for thought. Here is our logic.

First, the S&P 500 index has averaged over 8% per year, plus dividends, since we retired in 1991. If we take social security early and invest it, we won’t be losing the 8% per year the experts claim is the annual increase of waiting – although one is guaranteed and the other is not. Maybe the markets will trend sideways or go down or even up, no one knows.

For the last 27 years we have lived off of our investments through up and down markets, so investing the monthly check is definitely an option. More likely, we will just not spend our stash and look for opportunities in the markets as our cash positions grow. Plus we have control of the money at this point, adding to our net worth.

Next let’s look at some numbers.

11 years to break even

For easy math, say at 62 you are going to receive $1000.00 per month in benefits, but if you wait until you are 66, your payment will be $1360 ($1000 x 8% for the four years you have waited). Sounds great, right?

However, you would have missed receiving $48,000 dollars in payments from the previous 48 months. How long is it before you make that money back? Using this example it would take 133 months or a little over 11 years ($48,000 divided by $360) and that would put us at 77 years of age, just to break even. In that time frame, the Social Security we are receiving plus our investments should grow far outpacing the extra money received by waiting.

For some people deferring until their full retirement age could make sense, especially if they do not have the assets to support themselves, are poor at handling money or if they are still working. However, this is not our situation and therefore we decided to take the money and run.

It’s really a question of who you think can handle your money better; You or Uncle Sam?

Update: The illustration above shows the return of the S&P 500 Index since we took Social Security at 62.

Billy and Akaisha Kaderli are recognized retirement experts and internationally published authors on topics of finance, medical tourism and world travel. With the wealth of information they share on their award winning website RetireEarlyLifestyle.com, they have been helping people achieve their own retirement dreams since 1991. They wrote the popular books, The Adventurer’s Guide to Early Retirement and Your Retirement Dream IS Possible available on their website bookstore or on Amazon.com.
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The two main types of Financial Independence

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By Vicki Peuckert Cook

Special to the Financial Independence Hub

If you are financially savvy and on your way to a secure retirement, you may already know the steps you should take to work toward financial independence. Maybe you’re already there.

But if you are climbing out of debt and just taking control of your money, financial independence (aka “Findependence”) might seem entirely out of reach. If you have kids, focusing on solving your own money problems may be complicated by your concern about their financial future too.

Financial independence means two different things at two different points in life. And they are both significant milestones. You and your adult children may even be working toward them at the same time!

Here are explanations of both kinds of financial independence and actions to consider to make the path to “FI” attainable, no matter where you are starting from.

Becoming Financially Independent from your parents

Adult children who no longer require any monetary support from their parents are financially independent. This doesn’t mean that a parent can’t provide some kind of financial aid if they choose, it means a child can meet their financial obligations without parental help.

With money concerns including five-figure student loans, rising rents, and considerable consumer debt, many young adults face an uphill battle when trying to leave their parents ‘financial’ nest. And parents may also be “sandwiched in” – helping their kids and providing support for aging parents while trying to save for retirement.

For the benefit of everyone involved, parents and adult children have a responsibility to each other to focus on changes and develop a plan to make financial independence a priority.

What can young adults do?

They can learn how to track expenses and make (and stick to) a budget. Making choices like sharing housing with friends and buying used cars or taking public transportation can also help 20-somethings tackle debt.

Over time, increased income from second jobs paired with making frugal choices like cooking at home, can provide the money adult children need to minimize and finally eliminate the need for parents to provide financial support.

What should parents do?

Parents should start setting limits on the assistance they provide their children. And they should work closely with them to create a plan to end all financial support over a set period of time. Parents need to realize they may actually be harming their kids by enabling their kids to make decisions that aren’t always focused on them becoming financially secure.

If a parent always steps in with a solution, their kids may not learn the importance of meeting their needs while putting off wants for the future. And this will only lengthen the time needed to reach financial independence.

Providing advice, emotional support, and helping adult children problem solve money troubles shifts the financial relationship to adults talking, rather than a parent instructing their child on what to do.

Becoming Financially Independent from Work

The other definition of financial independence is one that’s sometimes debated. But there is little argument that it should be a future goal of everyone. In general, reaching financial independence means you have enough income to pay for your living expenses for the rest of your life without having to work. Continue Reading…