All posts by Financial Independence Hub

My journey to Passive Index Investing – Part 1

Posted By |
By Dr. Networth
Special to the Financial Independence Hub

“If I were you, I would check out ETFs.”

And that’s how it started.   An idea was planted in my head.   A little nudge from a friend of mine.   This was back in 2009, when Exchange-traded Funds (ETFs) were not widely known.   I had never heard of the term before, and I did not know much about investing apart from hearing whispers  that I should just go to MD Management, hand over my money and let them “handle it.”

I was just finishing up with residency/fellowship, and was about to embark on my first staff physician job.  Since my pay cheque was about to dwarf my resident’s salary, I figured I should probably know the basics about investing, so I asked my friend for his advice.   At the time, he was working as a financial advisor at Bank of Montreal (BMO) with “high-net worth clients” (portfolios over $1 million); thus he seemed like a good resource to start with.  Looking back, I am extremely grateful for his honesty and transparency, as he could’ve easily recommended that I hand over my money and let him “handle it.”

I asked him what he recommended to his “high-net worth clients” to invest in.   His answer: BMO mutual funds.  Made sense, since he was at BMO.

Not all advisors invest alongside their clients

Then I asked him what he invested his own money in.  To my surprise, he invested his own money in ETFs, and did not hold a single BMO mutual fund.  I had always thought “wealthy” clients had access to the “best” investment products, so naturally, he would have done the same.

What???   I was confused!

Paraphrasing his answer:   “At the beginning of each month, financial advisors are told to recommend specific mutual funds to their clients in order to meet quotas, which in turn results in bonuses/commission fees.   The funds usually have a high MER (2% and above).   It lines my pockets and the bank’s pockets.  If I were you, I would check out ETFs.”

Looking back, I realize my friend was not your typical financial advisor.  He enjoyed reading books on personal finance/investing topics, and was quite knowledgable about investing.  Needless to say, he become disillusioned with the banking industry with all the sales tactics and the commissions and quotas driven nature of it all.   Not long after our conversation, he left the banking industry to pursue a career in a different industry that made him much happier.

Continue Reading…

Longevity, marital breakdown are 2 big reasons women need to take charge of their finances

Posted By |

By Kathleen Peace, CFA, CFP

Special to the Financial Independence Hub 

A recent poll by IPC Private Wealth among 400 affluent Canadians with at least $500,000 in investable assets revealed that 74% of men say they are the lead financial and investment decision-makers in their household. Among women, only 46% say they are the lead decision-makers.

Ladies, listen up! You are probably going to live longer than your male partner. On top of this, there is a 50% possibility that you will divorce your partner (with financial conflict being one of the reasons why). In either case, you will experience a large inflow or outflow of both investment assets and income. This eventuality means that being 100% cognizant of your family’s current financial situation is a must. Waiting to figure this out until after a spouse’s passing or marriage breakdown is at best reckless, and at worst, an enormous imposition on what will already be an emotionally taxing situation.

Let’s get on top of this. A Masters degree in Finance is not required. Gather information and open up a regular dialogue with your spouse. Both will go a long way to getting on top of your family’s pecuniary situation. Here’s how to get started.

Communicate, Communicate, Communicate

Enlist your partner’s help in becoming more aware of your financial situation. Given that money issues are among the top friction-areas for couples, keeping an open dialogue about how money is run in your family will benefit your marriage both fiscally and emotionally. Opening up this discussion is not always easy.

For many families, money is a taboo subject; in fact, many feel that the most difficult topic to discuss with loved ones is their personal financial situation (apparently they would rather discuss death, politics or religion!) An incredibly helpful resource for starting the money conversation with your partner: Breaking Money Silence: How to Shatter Money Taboos, Talk More Openly about Finances and Live a Richer Life, by Kathleen B. Kingsbury.

Know your Advisor

If you don’t know your family’s financial planner/advisor, change this! Continue Reading…

Does downsizing to a secondary housing market really save money?

Posted By |

 

By Penelope Graham, Zoocasa.com

Special to the Financial Independence Hub

Despite the efforts of new rules and regulations, real estate prices continue their upward trajectory across the nation; according to the Canadian Real Estate Association, the HPI Index rose in nine of 13 markets in January by an average of 7.7 per cent, while the average home price increased 2.3 per cent, to $481,500.

However, CREA noted that excluding Canada’s largest housing markets – Toronto and Vancouver – would strip a whopping $107,500 out of the national sale price, with the remaining markets contributing to an average of $374,000.

While it has always been more expensive to live in a main city centre than in a rural market, excessively hot price growth over the last few years has increasingly prompted buyers to explore their options in secondary real estate markets, fuelling the migration to further-flung communities with comparatively affordable housing. And, as new stress-testing mortgage rules designed to squeeze affordability are now in place, this big-city exodus won’t slow any time soon.

Savings offered by secondary Real Estate markets

This trend is perhaps most evident in Ontario’s Greater Golden Horseshoe region, home to the City of Toronto and surrounding markets that stretch as far as Niagara, Peterborough and Windsor. Prices have ballooned in Toronto over the last two years and – while slightly softer following the implementation of the Fair Housing Plan last year – remain firmly out of reach for many prospective home buyers. For perspective, the average sale price in the Greater Toronto Area fell 4.1 per cent to $736,783 in January, yet a buyer earning the city’s median household income of $78,280 would qualify only for a maximum mortgage of about $545,692.

One of the most popular real estate destinations for these displaced buyers is the City of Hamilton, located to the west along the shores of Lake Ontario. At a roughly one-hour’s drive from Toronto’s downtown core, and boasting beautiful natural features in addition to a rapidly-gentrifying downtown, home seekers have been drawn to the Hammer in droves.

However, affordability is clearly their main motivation, as freehold Hamilton real estate can be had for a relative bargain compared to its Toronto counterparts, with the average home costing $549,546 in January. That’s a whopping $734,435 less than the average Toronto detached price of $1,283,981.

Is It worth moving to another city?

Such savings are tempting – but there are considerations all buyers should mull over before booking a long-haul moving truck. Continue Reading…

Online Fraud: 7 simple ways to protect yourself from a #clicktastrophe

Posted By |

By Rob Fodor

Special to the Financial Independence Hub

If you’re like most people, you have a phobia about phishing. In fact, as we found in a recent Interac survey, almost one quarter of Canadians have clicked on a link that resulted in a phishing scam.

It’s no wonder Canadians are more likely to be worried about payment fraud scams such as phishing and skimming than they are about having their homes broken into or their cars stolen. Fortunately, just as you can take steps to protect your home and car, there are things you can do to protect yourself from online scams, too.

Beware Phishing trips

Phishing is a scam where fraudsters try to get your personal or financial information – such as passwords or card numbers – by masquerading as a trusted person or business, usually through email, text or an instant message, but also sometimes by phone. Continue Reading…

Budget 2018 aftermath: Holding passive investments inside Private Corporations

Posted By |

By Brad Smith and Tea Pupica-Terzic 

Special to the Financial Independence Hub

The 2018 Federal Budget confirms that the Government will move forward with the implementation of the December 13, 2017 proposals regarding the splitting of income by private company owners and their family members. The Budget, however, proposes two additional key measures regarding the taxation of passive investment income earned by a Private Corporation, a topic that was aggressively targeted by the July 2017 consultation paper on tax planning strategies involving private corporations.

The first measure focuses on limiting the access to the small business tax rate to private corporations earning a significant amount of passive income.[1]  Currently, the small business deduction limit allows for $500,000 of active business income to be taxed at a preferential small business tax rate. This $500,000 limit begins to be ground down once the taxable capital of an associated group of companies reaches $10,000,000; it is completely eliminated once the taxable capital of the group is $15,000,000.

Budget introduced new reduction mechanism on passive investment income

The Budget’s proposal introduces a new reduction mechanism, which will work in tandem with the aforementioned existing business limit reduction, based on the passive investment income earned by a private corporation and its associated group. Specifically, once a corporation and its associated members earn $50,000 of passive investment income in a given year, the small business deduction limit begins to be ground down, on a straight line basis, until the passive investment income reaches $150,000. At this point, the small business deduction limit would be ground down to nil. The new reduction will apply to taxation years that begin after 2018.

The second measure aims at correcting an unintended tax advantage currently enjoyed by some private corporations when paying out eligible dividends to their shareholders in situations where the refundable tax pool (aka refundable dividend tax on hand “RDTOH”) was generated from investment income that would need to be paid out as a non-eligible dividend. The Budget is creating a new account, called the eligible RDTOH account, which will include the tax paid on eligible portfolio dividends.

Otherwise, tax paid on investment income or on non-eligible portfolio investments will be included in the non-eligible RDTOH account. The ordering rule will dictate that a private corporation, in payment of non-eligible dividends, will first have to access the refundable tax in the non-eligible RDTOH pool before it can tap into the eligible RDTOH pool.  A payment of eligible dividends will only entitle the corporation to dividend refund to the extent of its eligible RDTOH pool. These new measures will also come into play after 2018.[2] Continue Reading…