Tag Archives: investing

A smart guide on how to invest in 2021

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By Alex Barrow

Special to the Financial Independence Hub

2020 was a difficult year in markets and the economy. There remains a high level of uncertainty heading into the new year. Below we’re going to walk you through some time-tested practical steps on how to prepare for the coming year, in order to make sure you’re financially set for whatever may unfold. 

1.) Assess your personal balance sheet

When planning your finances for the new year it is critically important to know and understand the strength of your current financial position. You can do this by running through the exercises below. 

• Understand your financial obligations relative to your income: 

Are you carrying high levels of debt relative to income? What is the composition of this debt: is it mostly in high-interest credit cards or a low fixed-rate mortgage? The 36% Rule states that your debt to income (DTI) should never surpass 36%. When your DTI rises above 36%, your personal balance sheet is fragile and you become more exposed to financial risk. In these difficult times of uncertainty, it’s important to keep your DTI low so as to maintain financial flexibility. 

• Upcoming big-ticket expenses: 

Do you plan to make any big purchases or financial outlays in the coming year? Perhaps you’re planning to buy a home and purchase a new car or pay the tuition for your child to attend their first year of college … These are big expenses that can stress the strongest of personal balance sheets if one doesn’t plan properly. That’s why it’s important to note these at the start of the year so you can start preparing for the expense. 

  • Nonessential spending: 

Frequent dinners out and vacations at the beach are fun but if they come at the cost of putting a strain on your financial security, they can cause more stress than they’re worth. A good exercise for planning for the coming year is to look back at your expenses from the year before and see where you’re maybe spending a little more money than you’d like. Those $6 lattes every morning add up! 

2.) Set your personal financial goals 

To cite the oft-quoted baseball sage, Yogi Berra “If you don’t know where you’re going, you’ll end up someplace else.” Financial planning and goal setting are critically important to protecting your resources and securing the future you want. From a practical standpoint, this means doing a number of key things at the start of each year. 

  • Set a target retirement savings amount: 

Retirement might be a ways off for you, or not. Regardless, it’s never too early or too late to start planning for it. The rule of thumb is that you should aim to stash 10%-15% of your pretax income into a retirement savings account each year. The earlier you can start doing this the better because that puts the power of compounding in your favor.  

  • Invest, invest, invest: 

The best way to grow your wealth over time is to start investing early and often. This means putting a percentage of your income into low-cost stock and bond indices, on a consistent and regular basis.  

  • Take control of your debts: 

Turning back to keeping your DTI below the key 36%, debt is a financial burden that has to be dealt with before it grows out of hand. This takes time and planning. Just like how the power of compounding works in your favor in investing, it works against you when you carry large amounts of debt if you’re just paying the minimum. Continue Reading…

Cautiously Pessimistic

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By John De Goey, CFP, CIM

Special to the Financial Independence Hub

If I had a nickel for every time I heard someone say they were ‘cautiously optimistic’ about one thing or another, I’d be wealthy.  This got me to thinking – why do I never hear anyone say they’re ‘cautiously pessimistic’ when invited to prognosticate about the not so distant future?

Seeing as the future is unknowable by definition… and seeing as there’s a strong consensus that caution is an appropriate stance to take when looking forward, why is there near uniformity that this caution should be tempered by optimism?  Where are the cautious pessimists?  For that matter, where are the reckless people (optimists and pessimists alike)?

The financial services industry is prone to Bullshift – where the glass is always half full and the industry will try to convince you of much no matter what the facts are and no matter how dire the circumstances may be.  Think back.  When was the last time you heard an analyst predict a year over year market decline?

Optimistic Realist?

My point here is that I don’t want to be a downer.  Rather, I want to be a realist.  Heck, some people have even called me an optimistic realist.  At any rate, it seems to me that pessimism isn’t particularly well thought of in my line of work.  Continue Reading…

The most under-owned Asset Class

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Brazil, Russia, India, China and South Africa (BRICS) are just some of the 23 Emerging Markets most investors are underweight in

By John DeGoey, CFP, CIM

Special to the Financial Independence Hub

Pretty much every serious investor has a favourite investment thesis or theme that they employ.  Many of these are mainstream, which, by, definition, means that a number of people do something similar.  One such theme is to invest disproportionately in either dividend paying stocks or stocks that have a history of raising dividends.  Some people like to invest in the so-called FAANG stocks.  Some people like to speculate and call it ‘investing’ by putting large percentages of their assets into new ideas like cannabis stocks.  The point is that there are different strokes for different folks and that virtually everyone can justify their own peculiarities.  People seldom resist their own ideas.

I’m like most people.  For a generation now, I have been pounding my fist on the table about the need to address what I see as a chronic under-investment in emerging market equities.  To me, this asset class makes sense from virtually every meaningful perspective: historical risk, expected return, co-variance, current valuation, prognosis for growth… you name it.

In a world where overall GDP growth is anemic and not likely to improve materially in our lifetimes, emerging economies are the only ones where economic (specifically, GDP) growth remains strong.  These are rapidly industrializing countries which are mostly stable politically, young and full of ambitious strivers who want access to a more western way of life.  Many people are of the viewpoint that the key to a growing economy is a growing middle class. There are far more people entering middle class status in emerging economies than anywhere else. Continue Reading…

Bullshift Culprits 1 and 2: FOMO and TINA

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By John De Goey, CFP, CIM

Special to the Financial Independence Hub

Bullshift Culprit #1 FOMO (Fear of Missing Out)

For anyone who has been out of the loop, there are a number of acronyms and memes that have popped up over the past decade that help commentators to capture contemporary zeitgeist.  One of the most popular is FOMO – the Fear Of Missing Out.  The basic idea here is that other people are doing something (having fun, getting rich, cheating the tax man) that others want to get in on.

Getting in on things is all fine and well, provided they are legal.  Many aspects of FOMO are indeed legal and it should be obvious that there are social risks associated with wanting to do things that are not.  The thing to note is that there’s strong social pressure to participate – largely because there is some form of social proof that makes it seem as though everyone else is doing it, too (and getting away with it). If there’s one thing that upwardly-mobile people hate, it’s the notion that they are not ‘keeping up with the Joneses’ when they quite easily could be – if they only did whatever it was the Joneses are doing to give them the status / income / happiness edge they have in the first place.

Of all the possible examples of FOMO, getting rich by playing the stock market may well be the most insidious and the most common.  Anyone with seed money can do it.  No matter how rich or poor you are, if there’s a sense that you can make (say) an “easy 15%” on your money by investing in security X or product Y and that Betty and Bob in marketing both did it (and showed you their quarter end statements to prove it), the pull is often irresistible.  This can sometimes be fodder for something called “greater fool theory.”

Most real investors say “buy low; sell high,” but it needs to be noted that there is a segment of the population that makes money by using the principle of “buy higher; sell higher.” As long as there’s a ‘greater fool’ out there who is prepared to pay even more than the outrageous price you paid for something, you can make money by paying an outrageously high price to begin with.  This is a bit like a game of chicken or musical chairs.  At some point, the market runs out of ‘fools’.  In finance lingo, that’s when the bubble bursts. Continue Reading…

The unintended consequences of ESG paternalism

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By Cory Clark

Special to the Financial Independence Hub

As a parent, it can be hard to let your children make their own decisions. Particularly when you question the wisdom of the decisions they may make. At some point however, you have to let children make their own decisions. As they mature, that’s what they deserve, and it’s entirely possible they’ll make the right decision for them, even if it’s not the decision you would have made. One of the unintended consequences of overprotectiveness is that as soon as that child gets the chance, they fly the coop and stay as far away from their overbearing parents as they can. “Local college? No thanks.”

Last month, the U.S. Department of Labor [DoL henceforth] became a helicopter parent and pushed its proverbial children out the door when it issued new proposed rulemaking related to ESG [Environmental, social and corporate governance] investments within retirement plans. “Financial Factors in Selecting Plan Investments” seeks to codify harsh guidance on ESG investments within retirement plans, which will very likely have a chilling effect on the availability of such investment options to retirement plan participants.

The proposed rule is paternalistic to both plan fiduciaries and plan participants. With respect to plan fiduciaries, the DOL takes the unusual step of supplanting industry experts’ professional judgment in favor of their own. But perhaps the more damaging effect of the proposed rule is that it tosses aside the participant’s personal choice related to the values underlying their retirement investments. The Department has in essence said to America’s retirement plan participants, “we know better than you, and as long as you live under our roof…” This positioning can bring about a very predictable response, stop living under that roof and unlock your personal choice. Ironically, the Department issued a second proposed rule the very same month which shows participants the door.

The second proposed rule issued by the DoL, “Improving Investment Advice for Workers & Retirees,” officially reinstated ERISA’s 1975 definition of fiduciary, but made some critical adjustments to its interpretation such that rollover recommendations will be considered a fiduciary act and subject to an annual retrospective review. The proposed exemption would allow otherwise prohibited rollover recommendations, provided that the recommendation is given under an impartial standard of conduct.

DALBAR finds EST investments attractive in DC pensions

A recent DALBAR study shows that ESG investments are an attractant to defined contribution plan participation. It’s only natural that the inverse would also be true; the absence of ESG investments within a plan can be an incentive to invest elsewhere or not invest at all. This incentive is only going to get stronger as the younger generations, who have a greater preference for ESG, begin to make up a greater proportion of the retirement plan market. Continue Reading…