Tag Archives: Financial Independence

Another week. Another (Kiddie) stock roller coaster ride

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By Dale Roberts

Special to the Financial Independence Hub

The Canadian markets have been offering investors a little taste of volatility. Here’s a one week chart going back to last Friday.

And here’s the performance of the Canadian Markets (TSX Composite), 2018 year to date:

While that might look like a wild ride it’s all more of a kiddie coaster compared to the real thing such as the Leviathan at Canada’s Wonderland in Vaughn, Ontario. That coaster makes the 12 Scariest Rides according to tripsavvy.com.

Canadian markets are down by about 5% for the year. Once again: Kiddie Coaster. Serious stock market roller coaster rides will take you down by about 30%, 40%, even 50% or more. Yup, in a major correction you might have to watch your monies get cut in half if you’re in an all-stock portfolio. That 50% haircut has happened twice in the last 20 years. Many of us have been ‘lucky enough’ to invest through the two biggest market corrections since the Depression of the 1920s/1930s.

Those real roller coaster rides taught us some valuable lessons. Some investors did lose a lot of money through those corrections. Why? Because they invested outside of their risk tolerance level. They took on too much risk. They were not emotionally prepared to watch their investment portfolio drop by 40%, 50% or more. They perhaps needed some of those shock absorbers known as bonds.

Those of us who were heavily invested in the tech-heavy indices such as the Nasdaq 100 (QQQ) or science and technology funds had to watch those investments drop by some 80%. Imagine watching every $100,000 fall to $20,000. Of course, many would jump off that roller coaster before hitting the bottom. Here’s a roller coaster ride that would make the list of Scariest Investment Rides. This is the QQQ ticker Nasdaq, chart courtesy of portfoliovisualizer.com. Full disclosure: I was ‘on’ that ride, and I don’t want to talk about it.  Once again the stock market can teach us some expensive lessons.

Friday Nasdaq

We can see that investors who did hang on were eventually rewarded with positive returns, even more than a doubling of their initial investment. In fact, if an investor had been consistent and had kept investing on a regular schedule through those ups and downs they could have seen returns approaching 9% annual.

Buy. Hold. Add. 

We might say that the risk assessment is deciding what roller coaster ride you can handle. Continue Reading…

Money never sleeps, even when you’re retired

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By Billy Kaderli

Special to the Financial Independence Hub

Just because you retire, your money doesn’t have to.

In the words of Gordon Gecko from the 1987 movie Wall Street, “money never sleeps.” And your money definitely won’t once you leave your job.

Many people are shocked to learn that since we left the conventional work force almost thirty years ago our net worth has actually increased, significantly out-pacing inflation and spending. Reading financial articles about what if retirees run out of money, I get the impression that the authors do not understand that once retired, your money can – and should – continue to work for you.

Working smart, not hard

Once you clock out or walk out of the office for the last time, that doesn’t mean your investments are frozen at that point. The stock market is still functioning and now your “job” is to become your own personal financial manager. Actually, you should have been doing this all along, but if not, start now.

You need to get control of your expenses by tracking your spending daily, as well as annually. This is so easy — only taking minutes a day — and this will open your eyes as to where your money is going. Not only that, but it will give you great confidence to manage your financial future. Every business tracks expenses and you need to do the same. You are the Chief Financial Officer of your retirement.

Income is important, but …

Many people structure their investments for income knowing they need $3,000 or more per month to cover their lifestyle. Which is fine, but inflation will be eating away at those numbers and most likely taxes will do the same. Over time your expenses will rise and your purchasing power will drop. You need protection to cover the increases.

Stocks provide that protection and there is an added bonus; when you sell, capital gains are taxed at a lower rate than ordinary income. Therefore, tilting your investments for growth as compared to income will help protect yourself against future inflation. Plus, it will minimize your tax liability.

The day we retired the S&P 500 index closed at 312.49. Today, this equates to a better than 10% annual return including dividends.

That’s pretty good for sitting on the beach working on my tan.

Making 10% on our portfolio annually while spending less than 4% of our net worth has allowed our finances to grow out-pacing inflation, while we continue to run around the globe searching for unique and unusual places.

The key is to start as young as you can with as much as you can and let the markets work in your favor. Time is the greatest asset with investing and younger people can utilize this to their advantage.

But what if you’re fifty?
Continue Reading…

What women want – and how to get it

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By Ed Rempel, CMA, Fee-for-Service Planner

Special to the Financial Independence Hub

There was a gasp from the audience, when this photo of a homeless woman was shown at a talk I recently attended.

A new survey shows that almost half of women fear they will become a “bag lady” someday. They fear being financially desperate and living on the street.

No job. No income. No partner. That is the fear.

 

I have asked thousands of people: “What’s important about money to you?” The #1 answer for women is security.1

What does “security” mean? It’s surprising how often the “bag lady fear” comes up. The #1 explanation is similar, but less severe:

Security: “Having enough so I never have to worry about money.”

Women want to know there will always be enough income for their family, for emergencies, and for the things that are important to their lifestyle. They want to focus on their life, their family and their friends and not have to constantly worry about whether they can afford it.

What does that look like and how do you get there? The answer might surprise you.

First, three questions:

1.) Jennifer has $2 million in stock market investments. This is:

A. Very risky.

B. Financial security.

 

2.) Financial security is:

A. No debt and safe investments.

B. Large diversified portfolio.

 

3.) Who is more secure?

A. Mary has no debt.

B. Andrea has a $200,000 mortgage and $1 million in investments.

 

Whether you ever become financially secure depends a lot on your picture of financial security.

Most people who want security do exactly the opposite of what they need to do to get it. The biggest mistake most people make is to think they can be financially secure by paying off all debt and having safe investments, instead of investing wisely for long-term growth.

I call this the “Zero Plan.” You retire with zero debt, zero investments (nearly), and zero income (except a bit from the government). People who do this are actually making it hard for themselves to have the nest egg they will need to be secure.

The truth is, investing very little money and buying low-return investments means you will never build up much of a nest egg.

What does financial security look like? What I have learned from experience helping thousands of people become financially secure is this:

Real security comes from having a huge nest egg.

A large portfolio of equities (stock market investments) is financial security. That’s what security looks like. Continue Reading…

8 habits that are killing your Retirement dreams

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A growing number of Canadians plan on working longer because they haven’t saved enough for retirement. We see it at a macro-level; Canadian households owe a record $1.69 in debt for every dollar of disposable income, meanwhile the personal savings rate in Canada stands at a paltry 3.4 per cent.

There are plenty of reasons why we owe too much and save too little. The economy stinks, people get laid off, and salary increases are few and far between.

That said we’re often our own worst enemy when it comes to taking care of our finances. Here are eight bad habits that are killing your retirement dreams:

1.) You don’t watch your spending

It’s tough to stop a money leak when you have no clue where your money is going. Small daily purchases do add up (latte factor, anyone?), but these spending categories can bust your budget much faster – big grocery bills, dining out too frequently, filling your closet full of new clothes, one-click online shopping, and expensive hobbies, to name a few.

The solution: Write down everything you spend for three months. I guarantee you’ll have an ‘a-ha’ moment at best, and at worst discover something useful about your spending habits that you’d be willing to change.

The goal of course is to spend less than you earn. It’s one of the major tenets of personal finance.

2.) You want the newest ‘everything’

Fashion and décor trends change, technology constantly evolves. Staying ahead of the curve means shelling out big bucks for the latest and greatest products. The problem is your capacity to buy new things will never keep up with the pace of innovation and change. It’s an endless cycle.

The solution: Wait. Early adopters pay a hefty premium to be first. Look no further than televisions, where the latest innovations can initially go for between $5,000 and $10,000: 10 times what they’ll cost in a year or two.

The bigger issue is the psychological need to always have the latest gadget or be at the cutting edge. Ask yourself whom are you trying to impress.

3.) You have the constant need to upgrade

Fewer than half of all iPhone users hang onto their smartphones until they stop working or become obsolete. Most want to upgrade as soon as their provider allows it: usually every two years. A small percentage upgrades every year whenever a new model is released.

While spending a few hundred dollars on a new phone every other year might not hinder your retirement plans, it could be a symptom of a bigger problem. The constant need to upgrade your technology, your car, and even your home can be a big drain on your finances.

Nearly three in 10 homeowners get the urge to move every five years, and 14 per cent actually want to move every year.

The solution: The same buy-and-hold approach that you take with your investments can also apply to your major purchases. The Globe and Mail’s Rob Carrick suggests a 10-year rule for homeowners to combat the odds of a housing crash and to save on transaction fees. Continue Reading…

How the USMCA affects Canadian homebuyers

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By Jordan Lavin, Ratehub.ca

Special to the Financial Independence Hub

Goodbye NAFTA, hello US-Mexico-Canada Agreement (USMCA).

The new trade deal with our neighbours to the south will have wide-reaching effects across all areas of our economy, and housing is no exception. While the agreement is said to be good for our economy overall, it’s not necessarily good news for your ability to afford a home.

What is the USMCA?

Canada recently reached an agreement with the United States and Mexico to replace NAFTA, the decades-old trade agreement that has stood since it was signed by Brian Mulroney, Bill Clinton and Carlos Salinas de Gortari.

The new agreement looks much like the old one, with some changes. Key differences include changes to the way the three countries approach auto manufacturing, fewer restrictions on trade of dairy products, and stronger measures against counterfeiting and media piracy. Like NAFTA, the USMCA makes it possible for the three countries to exchange goods without barriers.

For now, the US, Mexico and Canada will continue trading under the rules of NAFTA. The USMCA will come into effect once it’s ratified by its members, a process that could take months. In the United States, congress won’t vote on ratification until some time next year due to that county’s mid-term elections. Here in Canada, the looming Federal election means that if the USMCA isn’t made official by June, it could be delayed until 2020.

How does this affect Canadian housing?

If you’re wondering how having access to American milk at your local Superstore can possibly affect how much mortgage you can afford, you’re not alone. The implications for home affordability are driven by the market’s reaction to the uncertainty of the negotiation period, the removal of uncertainty brought by a signed agreement, and the actual economic growth that’s expected to occur because of the USMCA once it’s in force.

When the Trump administration demanded to renegotiate “the worst trade deal” ever, the market got spooked. As the trade war intensified, the US threatened to (and did) impose significant tariffs on imports from Canada. With repeated threats from our largest trading partner, there was a real chance that the Canadian economy could be jeopardized. Even though our economy was growing during that time, the Bank of Canada (BoC) was reluctant to raise interest rates, which it would normally do in that situation. Continue Reading…