All posts by Financial Independence Hub

Italian Economics: Watch Salvini

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By Jeff Weniger, CFA, WisdomTree Investments

Special to the Financial Independence Hub

In April, the Italian public was so incensed by the country’s broken government budget, endemic graft and unaffordable inward migration that half of the general election vote went to two protest parties. On the left, the Five Star Movement topped all, with 32% support, while the right-wing League party took 18%. Since then, the League has gathered even more support. Its leader, Matteo Salvini, may now be the most powerful person in Italy.

Salvini’s answer to the European Question

With a wave of migration from North Africa and the Middle East in recent years, Italy finds itself dealing with culture clashes and a scramble to find the money to house and feed the new arrivals.

But amid all the talk of the migrant crisis, what has gone largely unnoticed is that both Five Star and the League have some economic policies that are irrational at best, dangerous at worst. With the news cycle focused on cultural issues, we are wise to remember that Salvini, currently positioned as the champion of nativist Italy, has communist roots. His economic belief system has shifted with age, but this is no solace to EUR longs.

Key planks

The coalition government’s common ground includes overturning the Fornero Law, which increased retirement ages, and putting a universal basic income of €780 (C$1,193) per month on the table. However, the coalition does interestingly entertain the idea of a flat tax. All of these together would conspire to blow out Italy’s 2.3% budget deficit-to-GDP ratio.

Positive backdrop

Italy’s 1.4% GDP growth may be anemic, but it is above water, and high by Italian standards; the norm this century is +0.4%. The manufacturing purchasing managers’ index, at 52.7, has essentially been in nonstop expansion since the first quarter of 2015.1 Unemployment is down to a still-troubling 11.1%, but it was nearly 13% in 2014. Investors must ask: what odd fiscal and/or monetary policies will voters demand if conditions become recessionary?

Start with one such policy, which Brussels fears, that is haunting the bond market and EUR.

The specter of a parallel currency

A “New Lira,” side-by-side with the euro. The state will not come out and say it at the moment, but that’s what the proposal for “mini-BOTs” will mean. If Five Star and the League do go down this path, mini-BOTs would be short maturity debt instruments that can be used to state obligations. On the other side of the ledger, owners of the mini-BOTs could use them to pay taxes. This risk has been haunting the bond market and EUR since the idea entered the conversation in mid-May.

For this privilege 

Figure 1 highlights in green the few bonds that yield more than two-year Canadian sovereigns. Australia and the U.S. generally yield more across the board, but investors have to reach for seven-year bonds in Italy to exceed Ottawa’s 2020 maturities.

Figure 1: Sovereign Yields (Highlighted Green if > Canadian Two-Year Government Bond)

Figure 1_Sovereign Yields

December looms

The stated aim of the European Central Bank (ECB) is to “keep prices stable, thereby supporting economic growth and job creation.” But in the last decade, what mattered is its implicit mandate: keep Europe together. The combination of fuzzier European economic data and the potential for Italian mini-BOTs could cause a “dovish” surprise by the ECB’s Mario Draghi, who is set to end the central bank’s €30bn bond purchase program in December.  Perhaps the surprise is an extension of the bloc’s zero interest rate policy for another year or so. That could harm EUR bulls.

European banks not yet indicating Contagion

One way in which European systemic risks can be priced is via bank credit default swaps (CDS). Figure 2 shows current CDS levels along with the peak fear points of the last five years. Continue Reading…

Seasonal work in Retirement

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By Fritz Gilbert, TheRetirementManifesto.com

Special to the Financial Independence Hub

Have you ever thought about seasonal work in retirement?  My friend, Kirk, recently leveraged seasonal work to experience something for the first time in his life.  He became a cowboy, through a seasonal job at a Dude Ranch.

At Age 58!

You may remember Kirk, he’s visited with us before (including his thru-hike on the Appalachian Trail, his broken foot on the Pacific Crest Trail and the story of breaking his ribs when he Lived Life At The Limits on a mountain bike ride with yours truly).  This Fall, he’s heading to Nepal to do some trekking around Mt. Everest.  Interesting guy, my friend Kirk, and we can all learn something from the way he lives his life in retirement.

Today, he tells us the story of doing seasonal work in retirement at a Dude Ranch, which he did in the Spring of 2018.

The old military and corporate guy became a cowboy.  Well, that may be a bit of an exaggeration, but he did “wrangle horses” for 6 weeks at a Dude Ranch. How cool is that?

Here’s his story…

Working On A Dude Ranch

Kirk. A “FIRE Guy In His Prime”

I promised myself I would write three “potential” blog posts for my friend this year covering what could possibly be my most adventurous year since my retirement began 2 ½ years ago. Caution: I am not the spectacular writer that Fritz is; however, here is my latest adventure …

(Note from Fritz: I don’t know about my writing skills, but I do know that Kirk lives life more “on the edge” than anyone I personally know. Nepal, really? That Kirk guy is nuts!)

When I retired roughly 2 ½ years ago I decided to do away with my “LinkedIn” account. I was cleaning up some old things from my work years and didn’t think I would need a resume in my retirement life. As I started checking off things in my Dump Truck List (Buckets are no longer big enough) I started realizing that I had some skill gaps. Ultimately, I wanted to be a wrangler for a cattle drive in Montana but realized that wasn’t going to happen if I didn’t have some experience handling a horse.

I researched some possible jobs through www.coolworks.com and drafted a list of the qualifications for some of the wrangling jobs which interested me. Much to my surprise, I met them all with one exception:

I had no experience in riding a horse.

Having grown up on a farm really prepared me well for many aspects of the job, but we never had horses. How could I learn to ride a horse, handle the tack, teach the ranch’s customers, etc. if I didn’t know how to handle horses myself? While I suppose I could have paid for the experience — I am FI [Financially Independent], after all — there was something in me that kept gnawing in the deep recesses of my mind.

Thoughts which whispered, and thoughts that led to my decision to pursue seasonal work in retirement:

You have been so frugal all your life to get to FI, is this really how you want to spend your money?
Would you really be able to buy this experience or is this something you have to spend time acquiring skill, talent, and familiarity?
What other experiences do you need now in order to pursue the future adventures of your dreams?

(Note from Fritz: I like how Kirk thinks several moves ahead. Dream for your tomorrow, and identify what you should be doing Today in order to achieve your dreams. Move your life from Good To Great).

After much thought, I decided to venture out to an unknown area for me and listen to the younger crowd who said many of their wonderful experiences were as “Workaway” people.  Workaway is simply a web service that connects people who are looking for experience with people that are looking for help.  The Workaway people generally work 4 – 5 hours per day, 5 days per week in exchange for room/board and experience.  Given that I have plans to travel through Asia in the coming years, this approach could help with some international options as well. I looked into the site http://www.workaway.info and decided to give it a try.

It was somewhat difficult to determine where I would go to gain this experience.  I wasn’t sure how it would all work out, so I decided to minimize my risk by choosing a location that:

  • had good/great reviews by those who participated
  • was close so if it was horrible I could bail
  • had more than just myself as a workaway so I could learn from the experience of others

I ended up selecting a Bed and Breakfast Dude Ranch in upstate NY, only an hour away from where I grew up and where my mother still lives.  If it was a horrible experience I had a solid Plan B. I would simply bail out and stay with my mom, working around her house to complete some things on her “To Do” list.  It would also afford me the opportunity to spend time with some aunts, uncles, and cousins which I had not seen in far too long. Continue Reading…

5 surefire ways to stay out of Debt

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By Gary Bordeaux

Special to the Financial Independence Hub

In the modern world, there are two types of debt: good bad and bad debt. Good debt would be considered financing something that has the potential to go up in value, like a home or a small business. Bad debt would be considered consumer debt like jewelry, designer clothes, and luxury cars. These things tend to depreciate. People typically get into trouble financially when they start going into debt with consumer goods or things they really don’t need.

1.) Create a budget

Unless you are already financially well-off, you are going to need to create a budget for you and your family. This is the single biggest way not to go into debt. Why? Because you are tracking every dollar you spend. Start out by listing your monthly income after taxes at the top of the budget, then list your expenses below that. If you don’t have a surplus of money after all your expenses are accounted for, you are either spending too much money or you are not making enough money. Whatever the case may be, adjust your budget accordingly.

2.) Quickbooks

The Quickbooks online platform by Intuit is probably one of the best online financial tools you can use for your business. In general, it is an online accounting software that helps manage your finances for you. With an easy Quickbooks online payment, you can pay people and you can receive money too. In the end, business finances can get pretty confusing. Quickbooks allows you to track your finances more easily. Also, Intuit has a budgeting app called Mint. I use Mint quite often and it tracks all my transactions and spending activity. It also tracks your budgets, monthly cash flow, and your credit score along with many other investments and other accounts.

3.) Emergency fund

Let’s face the fact that bad things happen to good people. When these setbacks occur, people need money set aside to protect themselves from debt. This is what an emergency fund can do. First, start by putting away a simple $1,000 just in case an emergency happens. Continue Reading…

The Do’s and Don’ts of Trading ETFs

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By Bryan Moore, WisdomTree Canada
Special to the Financial Independence Hub
Exchange-traded funds (ETFs) have seen immense growth over the past decade. There are a multitude of benefits, including transparency, tax efficiency and the ability to make intraday trades, that have contributed to the use and growth of ETFs. While these are all beneficial to investors, we continue to see questions around ETF trading. Although ETFs trade on-exchange like stocks, investors have to understand that ETFs trade differently and that ETF execution is an imperative part of investing that should not be minimized.

Many investors know that when evaluating an ETF, average daily volume (ADV) does not indicate the true liquidity of an ETF. The liquidity of an ETF resides in its underlying securities, but how does one access that to ensure smooth execution?

Let’s discuss the do’s and the don’ts of how to best trade an ETF.

The Don’ts

1.)Don’t trade in the first or last 15 minutes of the trading day. This is when trade desks have less transparency and markets are more volatile.

2.)  Don’t place market orders; if you want to trade electronically, place limit orders. We advise investors to always use limit orders, especially in times of volatility. We also advise investors to not use stop-loss orders that turn into market orders.

The Do’s

1.) Do utilize your resources. Consult your trading desk as well as the relevant capital markets desk. The majority of issuers have capital markets teams that can consult on a trade. Additionally, the majority of advisors have access to a trading desk. These desks have access to expert market makers who can access the underlying liquidity.

2.) Do use a limit order when trading electronically, this cannot be said enough!

Most advisors have a trading desk through their firm or custodian, and they are always a resource as well. If there is one thing to take away from this piece, it’s to use your resources and make that phone call or email—it can be the difference between seamless execution and a very costly mistake.

Bryan Moore is Head of National Accounts and Capital Markets for WisdomTree Canada. 

Commissions, management fees and expenses all may be associated with investing in WisdomTree ETFs. Please read the relevant prospectus before investing. WisdomTree ETFs are not guaranteed, their values change frequently and past performance may not be repeated. 

Past performance is not indicative of future results. This material contains the opinions of the author, which are subject to change, and should not to be considered or interpreted as a recommendation to participate in any particular trading strategy, or deemed to be an offer or sale of any investment product and it should not be relied on as such. There is no guarantee that any strategies discussed will work under all market conditions. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This material should not be relied upon as research or investment advice regarding any security in particular. The user of this information assumes the entire risk of any use made of the information provided herein. Neither WisdomTree nor its affiliates provide tax or legal advice. Investors seeking tax or legal advice should consult their tax or legal advisor. Unless expressly stated otherwise the opinions, interpretations or findings expressed herein do not necessarily represent the views of WisdomTree or any of its affiliates.

“WisdomTree” is a marketing name used by WisdomTree Investments, Inc. and its affiliates globally. WisdomTree Asset Management Canada, Inc., a wholly-owned subsidiary of WisdomTree Investments, Inc., is the manager and trustee of the WisdomTree ETFs listed for trading on the Toronto Stock Exchange.

How to Retire debt-free

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By Laurie Campbell

Special to the Financial Independence Hub

These days, don’t be surprised to find a senior citizen standing behind the counter of your favourite fast food spot taking your order instead of a braces-wearing teen. What retirement looks like today has changed quite significantly from what it was even just ten years ago, and there’s no stopping this trend. More and more seniors are staying in the workforce, and for many of them, they have no choice.

Last June for Seniors Month, our agency, Credit Canada co-sponsored a seniors and money study that looked at the financial difficulties Canadian seniors are facing; the results, while shocking, were no surprise.

As a non-profit credit counselling agency, our counsellors are on the forefront of what’s happening when it comes to people and their financial hardships, and we are seeing a large number of people who should be starting to settle into their “golden years” still working, maybe even taking on an additional side job, just to pay off their debt, let alone get a time-share in Florida.

When we conducted our study in June 2018, it revealed that one-in-five Canadians are still working past age 60, including six per cent of those 80 and older. And while one third do so simply because they want to — which is fantastic, kudos to you — 60 per cent are still working because of some form of financial hardship, whether it’s too much debt, not enough savings, or other financial responsibilities, like supporting adult children.

The truth is the golden years have been tarnished, and I don’t know if we’ll ever get them back.

Half of 60-plus carrying some form of debt

Many of today’s retirees are living on fixed incomes, making them vulnerable to unpaid debt. In fact, our study revealed more than half of Canadians age 60 and older are carrying at least one form of debt, with a quarter carrying two or more types of debt. What’s even more alarming is that 35 per cent of seniors age 80 and older have debt, including credit-card debt and even car loans.

Staring at the problem isn’t going to help, nor is hiding from it. The best thing we can all do is to face the facts head-on and devise a plan of action that we know will work, whether it’s getting rid of any debt while building up savings, taking on a side job, delaying retirement by a few years, or all of the above.

Sizing up Government support

Before delving into the numbers it’s important to understand what income you can expect to have during your retirement. A few numbers have been compiled here as an example, but if you wanted to get more detailed information you can visit the Government of Canada website and click on the Canada Pension Plan (CPP) or Old Age Security (OAS) pages.

So, let’s get started by taking a look at 2017. Continue Reading…