All posts by Financial Independence Hub

Retirement Is not Rocket Science

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By Billy and Akaisha Kaderli

Special to the Financial Independence Hub

Getting your house in order for retirement or financial independence is not that difficult. Many investment professionals, journalists, and commentators seem to complicate the issue to the point that even we can’t understand it. Safe withdrawal rates, stocks, bonds, balanced funds, commodities, options, laddered portfolios, annuities, offshore accounts, hedge funds … are you kidding? No wonder some people are confused and scared!

What’s a person to do?

First, you need to recognize your needs. Let’s be realistic here. How much are you spending now? Not how much do you make a year, but how much are you paying out? With today’s computer tools, this is a very easy task to compute. Or you can do what we did: Create a chart on a piece of paper and add to it daily.

Date Cumulative spending Day# Cost/p/day Times 365
1/1/2018 $24.00 1 $24.00 $8760
1/2/2018 $99.00 2 $49.50 $18,068
1/3/2018 $144.00 3 $48.00 $17,520
1/4/2018 $244.00 4 $61.00 $22,265
1/5/2018 $314.00 5 $62.80 $22,922

(These figures are for illustrative purposes only.)

The longer you keep track of current consumption, the more confident you’ll become of your future spending habits.

Once you know your expenditures per year, take a look at where that money is going. If it’s to pay credit card bills or other consumer debt, you need to pay that off first. It’s fine to use credit cards as long as you completely pay off your balance monthly. And stay out of debt. I know this is not easy, but it’s your future, and the money you were paying in interest can now be invested.

With your debts paid off, you can commit to financial independence. Analysts say a guideline of 25 times your annual capital outlay should be enough to sustain your current lifestyle. With the data you’ve collected in your chart, you can easily calculate a target amount. It’s really that simple.

How do you get there?

Continue Reading…

Thinking responsibly about socially responsible investing

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By Tea Nicola

(Sponsor Content)

“Do the right thing.” That’s the new corporate motto for Alphabet, Google’s parent company, putting a more proactive spin on Google’s “Don’t be evil.” (Interestingly, as of this month, Google has eliminated the phrase from its corporate code of conduct).

On the one hand, Google’s change in mantra from “don’t be evil” to “do the right thing” is a perfect example showing we do not want to just avoid the worst, but elevate and encourage the best.

But what does the new motto mean, exactly? That motto, and that overly simplistic approach, is also what’s tripping up investors when it comes to Socially Responsible Investing (SRI).

SRI can be a great thing for investors. According to a Deutsche Bank study of more than a decade’s worth of data, ethical funds perform very well, indeed. That performance-plus-values formula explains why assets in Canada managed using one or more responsible investing strategies adds up to $1.5 trillion.

While the Responsible Investment Association noted individual investors’ responsible investment assets were up 91% in two years, a large chunk of that $1.5 trillion comes from institutional investors. That’s a good sign that the smart money is definitely aligned with fighting climate change, promoting human rights and admirable causes.

That enthusiasm is only likely to grow, assuming the younger generation keeps up their habits. Millennials are twice as likely as baby boomers to pick investments if they help solve social or environmental problems, according to a recent Ipsos survey cited in Business in Vancouver. The same report noted “about 38% of the US$5 trillion global public equity market is subject to some level of investment “screening.”

Demand is there. But for SRI, the devil is in the details.

Green oil companies, dark tech firms and shades of grey in SRI

What does SRI boil down to for a lot of investors and portfolio managers? Guns and tobacco, bad. Organic food retailers, good. Dirty, fossil-fuel-extracting drillers, bad. Silicon Valley tech companies, good. And on and on it goes.

There’s nothing wrong with trying to create simple investment categories. That’s particularly true for retail investors. Realistically, they might want to devote the bare minimum of time examining the holdings of various portfolios.

Nothing wrong with the intent, anyway. But execution is tricky.

Clean, green oil?

For instance, those giant fossil fuelled energy dinosaurs like Exxon and Shell? This sector has spent billions on cleantech. It’s in their interest to go lean and green, making their operations ever-more-efficient. Certainly, US and Canadian energy companies have stakeholders demanding higher standards, compared with Mideast producers. When Big Oil is also Clean(er) Oil isn’t it a bit perverse for ethical investors to stay away?

And of course, if the whole purpose of investing is to get a good return, that decision to turn away from this sector would seem downright irresponsible when oil is on a tear. Yes, green energy is the future … but investors want returns now, not just 10 or 20 years from now.

Socially responsible investors often risk unintended consequences. Another kind of oil (not the kind you put in your car), palm oil, went big a few years back. It was seen as a kind of superfood and made its way into a bevy of edible and beauty products. It was a clean, organic product … and then people realized that its cultivation was actually harmful to rainforests that got cleared for palm oil production.

Don’t be evil (or just kind-of-evil) … wink, wink, Facebook, Apple, etc.

The much-celebrated FAANG stocks represent the profitable innovation of Silicon Valley (Facebook, Amazon, Apple, Netflix, Google). Their leaders are seen as visionaries. The legions of smart people who work for these firms have created products that add immeasurably to the convenience and comfort of modern living. Their gleaming campus-sized, solar-powered, people-friendly office spaces are surely the opposite of the “satanic mills” of the coal-powered, mutilating sweatshops of the industrial era. Until quite recently (and coming soon once more), they were the stars of investor portfolios. Continue Reading…

Pension decisions: 6 six keys to a great retirement

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By Ermos Erotocritou, CFP, CPCA

Special to the Financial Independence Hub

You’ve undoubtedly thought a lot about the shape of your retirement but whether your plans include traveling, volunteering, starting a new career, or a myriad of other retirement dreams, the most important thing is having sufficient finances to ensure all of them become reality. If you are a member of an employer-provided pension plan, now is the time to make some important decisions that will have a strong impact on the amount and length of your pension.

Decide when your pension payments will begin

If you have a defined benefit pension (DB) plan, your annual benefit may be reduced if you retire before reaching a certain age or before completing a minimum service requirement. However, your plan may have a bridging benefit to offset an early retirement pension reduction that is paid from the date of early retirement up to age 65 when it will stop.

Decide whether or not your pension benefit transfers to your spouse when you die

You can usually: Elect to receive a life-only pension that ends when you die. It will deliver a higher monthly benefit to you than a joint and last survivorship pension but will not provide a continuing benefit for your spouse after you die. The plan member’s spouse will need to sign a waiver to take this option.

Select the joint and last survivorship option. While your monthly benefit will be lower, the “joint and last survivor” option is usually better unless your spouse has his or her own pension, Registered Retirement Savings Plan, non-registered assets and/or adequate insurance coverage. Factor in the expected life expectancy for you and your spouse.

Choosing the survivor benefit

Not all plans allow you to do this: check the details of your plan. In most jurisdictions, the “standard” survivor benefit is 60% of the pension that was being paid to you prior to death; however, some plans will include other options such as 66 2/3%, 75% and 100% survivor benefits. If your goal is to leave an estate to your beneficiaries, commuting your pension could make sense.

Do you have the option of receiving your pension benefit for a guaranteed minimum number of payments? Continue Reading…

Subsidizing China’s Superpower aspirations

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By Jeff Wenniger, WisdomTree Investments
Special to the Financial Independence Hub
 

Christine Lagarde, head of the International Monetary Fund (IMF), is warning that China’s Belt and Road Initiative — the potentially multitrillion-dollar network of roads, rails, pipelines and other infrastructure across Eurasia — risks saddling unstable governments with unpayable debt.

Because of the IMF’s concerns, it plans to fund the China-IMF Capacity Development Center (CICDC) to train the Chinese to minimize the headaches caused by this century’s Marshall Plan. If all goes according to plan, the Belt and Road project will connect land- and sea-based trading routes to cement China as the center of global commerce in a decade or two.

While China appears to be ascending into world superpower status in the coming decades, a $100 investment in “global” equities allocates just $3.51 to the country, if we track an index like the MSCI All Country World (ACWI).1 That seems remarkably low for a country that is going head-to-head with the U.S. on the global stage.

It was only last year that MSCI announced it would be adding Chinese A-shares, companies listed in Shanghai and Shenzhen, to its MSCI Emerging Markets Index. That is late for an economy whose size surpassed the U.S. in 2014, at least on a purchasing power parity basis (see chart below).

China & U.S. Shares of Global Gross Domestic Product

China & U.S. Shares of Global Gross Domestic Product

Covering China, wherever the Listing

While some Chinese companies are only available in Shanghai or Shenzhen, others are listed solely in Hong Kong. Still others have American Depository Receipts (ADRs) or are traded in Singapore.

The WisdomTree ICBCCS S&P China 500 Fund (WCHN) ETF tracks the S&P China 500 Index, before fees and expenses, covering stocks in all those bourses. This index currently holds over 50% in local A-shares. MSCI, by contrast, is only starting to add A-shares securities up to a 5% inclusion factor in 2018, a small starting point. It’s high time China has its own S&P 500, especially if President Xi Jinping has anything to say about it.

Going Out

Deng Xiaoping, ruler of China from 1978 to 1989, famously advised his country to “hide your strength, bide your time.” China’s great goal of the last four decades — development, development, development — was to happen quietly, with fingers crossed that the U.S., Japan and Western Europe wouldn’t get too frightened. Continue Reading…

How to teach your children good financial habits

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Special to the Financial Independence Hub

Teaching your kids sound financial habits when they’re young can help them learn to make wise choices about their money, and ease their reliance on you later.

Alison Tedford blogs about parenting at Sparkly Shoes and Sweat Drops, and at home is a dedicated mom who teaches her eight-year-old son Liam about finances, among other life lessons. We spoke with Alison as well as Jeannette Brox, CFP®, a senior financial consultant with Investors Group in Toronto, who’s affectionately called “The Money Lady” by her clients’ children.

The value of effort versus reward

To help instil a sense of the value of money in Liam, Alison enlists Liam’s help as she works on her blog and manages her social media channels, and ensures that he understands the financial value of each activity. “When he wants something, we tell him it’s the value of a blog post, or a Facebook Live video,” she says. “That way, he understands the value of the item relative to the effort he needs to put into it. Then he can make a judgement call as to whether the money should be spent or not.” When a larger contract comes in for Alison, they discuss how to use the money as a family.

This principle of making money choices can be adapted to your child’s age and situation. For example, a new iPad might be equivalent to 20 “regular” toys. Or, if your child receives an allowance, you can help them understand the length of time it’ll take to save for what they want and what they might need to give up in the meantime. It all adds up to an important money (and life) lesson about short-term compromise to reach long-term goals.

Jeanette Brox, CFP, Investors Group

In Jeanette’s practice, she gets her clients’ kids to start saving monthly at a young age. “It becomes meaningful for them,” she says. “When they get older, they understand the power of money accumulating instead of blowing it on stuff.”

She uses the same “save early and often” approach for children of different ages, although the situations will be different. “A six-year-old is excited when they’re saving to contribute to something they want. When they finally get it, they have pride of ownership.” She’s also helped kids save up for things they may want in their teenage years, such as a car, and advised teenagers who are buying sports equipment to get it off peak season to save money.

Jeanette also encourages kids to save for their own post-secondary education. “Even if parents contribute to an RESP, there may not be enough money to cover all of their university or college expenses.” And she recommends that children cover the cost of their own first year of school. “It makes them more responsible to have made that financial commitment,” she says.

Problem-solving helps form sound financial habits

Alison engages in proactive problem-solving to teach her son responsibility, even in situations unrelated to money. “For instance, it’s a common parenting challenge to have kids come to you with homework that didn’t get done that now has to get done in a short period of time,” she says.

Instead of jumping to do the task for Liam when this happens, Alison points him in the right direction by asking him to troubleshoot how he can help himself and to analyze what got him into the situation in the first place. “We look at contingency planning for the next time, such as setting reminders, tracking deadlines and so on.” Continue Reading…