Hub Blogs

Hub Blogs contains fresh contributions written by Financial Independence Hub staff or contributors that have not appeared elsewhere first, or have been modified or customized for the Hub by the original blogger. In contrast, Top Blogs shows links to the best external financial blogs around the world.

What to do and not to do when with your IRA

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By Sia Hasan

Special to the Financial Independence Hub

If you have decided to invest in a self directed IRA (Individual Retirement Account: the American equivalent of Canada’s RRSP), you have taken the first step to enjoying a better financial future and to preparing for peace of mind in retirement. However, simply opening an IRA account is not all that it takes to benefit from this type of retirement account. If you want to maximize the benefits of your IRA fully, follow these helpful tips:

Choose the right type of Retirement Account

There are several types of IRA accounts that you can open, and two of the most common options are a traditional and Roth IRA. There are significant differences between these accounts. By learning more about these differences, you may be able to find the account type that is best for your financial planning efforts.

Both have similar contribution limits, but a Roth IRA uses money that has already been taxed as contributions. When you withdraw the money after you reach age 59 and a half, you can enjoy tax-free distributions. A traditional IRA, on the other hand, uses pre-tax dollars as contributions, and the money is taxed at a later date when you withdraw the funds. Depending on your current tax rate and your projected tax bracket in retirement, you may find one of these options to be far more useful than the other.. For example, if you expect to be in a lower tax bracket in retirement, a traditional IRA may be a better option for you because it minimizes your tax liability.

Maximize your contributions

If you want your account balance to grow at the fastest rate possible, you should make regular contributions into it each year. More than that, you should maximize your contributions annually to fully take advantage of the tax benefits associated with the account. Any additional investment funds that are available can be invested in another tax advantageous account or in a non-investment stock account.

Be aggressive in your younger years

With a self-directed IRA, you are in complete control over how your funds are invested. This means you can choose to take less risk or more risk. While taking more risk may sound unwise, the reality is that riskier investments generally have a higher return. In your younger years when you have decades before retirement, you can more comfortably take these risks with your investments. When risks are intelligent and moderated, you can grow your nest egg substantially in the younger years of your adult life. Then you can comfortably reduce your risk and return later in life without negatively impacting your financial security in retirement. Continue Reading…

End the year with your taxes in order

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By Lisa Gittens, H&R Block

Special to the Financial Independence Hub

At this time of year, you’re likely occupied with decorating for the holidays, cooking an abundance of food for family, and selecting gifts for your Secret Santa exchange. Amidst the placing of ornaments, stringing of lights and baking of cookies, taxes are probably the last thing on your mind: they’re something you’ll think about next year, when you’re reminded it’s officially tax season.

But, believe it or not, the end of a calendar year is the perfect time to review the current state of your filing and get your taxes in order before flipping the page to 2018. To help you do just that, H&R Block offers these tips:

Agendas make great friends

Treat yourself to the gift that keeps on giving: an agenda. With this new friend in tow, you can take advantage of sporadic free time and update it with all relevant tax-related dates so they don’t sneak up on you in 2018. Examples of entries you’d want to include are: February 26, 2018, which marks the day the Canadian Revenue Agency officially opens.

(As a side note, this is actually the latest opening in Canadian history and means Canadians will have a shorter window to file taxes.) April 30, 2018 is another date to keep in mind: it’s the deadline for filing 2017 personal tax returns. (If you’re self-employed, the deadline is June 15, 2018.)

Organization is in style

Hopefully you’ve been saving bills, tuition receipts, transit passes, charitable contribution receipts, health expenses, and other key tax documents this year. When it comes to your tax return, it literally pays (in the form of a tax return!) to retain and organize these documents. Like agendas, accordion-style folders with tabs to separate by category are great gifts to yourself. Just ensure you keep it in reach — and out of harm’s way — so you’ll be more motivated to use it throughout the year. Continue Reading…

What if I sold in May and went away?

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At the end of April we wrote a piece looking at some new research on the calendar effect and popular heuristic known as Sell in May and go away.

While there is some evidence that this particular anomaly does exist and has persisted over certain periods of time, there is not really a good theoretical foundation for why it happens.  Mining historical data often yields patterns but assuming that those patterns will repeat can lead to unfortunate investor strategies and behaviours.

It’s in our nature to love short-cuts

Investors just love short-cuts. In fact not just investors love them but people in general always use heuristics to help increase the efficiency of their decision-making.  If you step outside, feel a sudden cool breeze and look up and see a dark cloud in the vicinity you respond fairly quickly and sensibly by seeking shelter or at least grabbing an umbrella as you head out the door.  This ability to create short-cuts makes our lives so much easier and sometimes even keeps us safe.   We recognize patterns that we’ve seen before, assume they’re going to happen again and act almost automatically in response: it simply makes decision-making faster and less difficult. No need to analyze things in detail, just act.

The challenge is that the same heuristics that make decision-making easier and faster or keep us safe in many aspects of our lives can also produce behavioural biases that don’t help us as investors.  We love things like the “January effect” or “Sell in May and go away” because they’re easy and have sometimes worked in the past.  But putting them into practice doesn’t always work out the way we might imagine.

But short-cuts don’t always work with investing

This year is a good case study.  What if we had sold in May and stayed out of the market through until now?  To cut to the chase, you wouldn’t be happy!  A Canadian investor would have missed out on the following returns from May 1 until now (all in Canadian dollar terms – return data from S&P Indices Canada and exchange rates from Bank of Canada as at December 7, 2017):

S&P/TSX Composite Total Return Index: +4.6%

S&P 500 Net Total Return Index (in CAD): +4.7%

S&P Global ex-US Broad Market Net Total Return Index (in CAD): +4.8%

Continue Reading…

Rekindling our inner creativity and frugality this Holiday season 

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By Maria Weyman, creditcardGenius

Special to the Financial Independence Hub

Gifts, parties, drinks, and yes … food! Is there a more expensive time of year than … now?

Staying on the straight and narrow road of financial responsibility means we can’t go about our lives like a zombie (oh wait, wrong holiday )…

But how do we stay frugal (yes, I’m using the F word), and keep fun within arm’s reach?

It’s all about creativity

… not sacrifice.

So, don’t worry, I’m not going to ask you to create two separate lists for needs and wants. Instead, let’s stick with one master list: where you list your full holiday needs and wants.

Now, here’s the thing. At the bottom of your list, write the max dollar amount you plan on spending for everything. But before you write that single number down … a little research would help, like:

How much disposable money –- after your fixed expenses and savings goals –- do you have in the bank?

(No, your credit card limit doesn’t count.)

Working with that single number –- your maximum budget –- it’s time to break it down into chunks depending on what’s in your list. Now we’re cooking.

You’ll feel a little bit of tension. An internal struggle when you’re deciding how and where to allocate your holiday spend. Completely normal. That just means our brain is getting warm and prime to let our creative juices flow. Because here’s a not-so-obvious secret:

Constraints and limitations drive creativity.

Make it a game

Because games are fun. And at its core, aren’t games all about solving problems and overcoming specific challenges?

Even more fun when you get to save, indulge yourself, and spoil the people you love in the process. And here’s the best part:

You get to create the rules.

Here are some questions and suggestions:

Review your list

When you review your list…

  • Is there anything that you can get pre-loved (say hello to Kijiji, Craigslist, and even Facebook)?
  • Is there anything that you can create yourself (using a little help from Pinterest and YouTube)?
  • Is there anything that you can borrow from friends and family?
  • Is there something that you can replace with something that is just as good or better?
    • Example: if you’re thinking of getting your bff that beautiful warm $50 scarf, how about a) inviting her over for home-cooked dinner?, or b) volunteer to watch over the kid(s) for an afternoon so she can have a “me time”?

Anytime you can DIY [Do it Yourself], borrow, replace or get something pre-loved…write down how much you’re saving. Obviously, the bigger the number, the bigger the genius you are.

What’s at stake? Well, that’s for you to decide.

Free is fun

Let’s stop and think about all the free things we’re getting online; amazing isn’t it?

So, back to your list. Is there anything you’ve listed that is available for free? Some ideas …

  • Free local events: Check Eventbrite for current and upcoming local events, some have tickets for sale and some are free.
  • Free stuff. Browse Kijiji and Cragslist free stuff and see if there’s a match on what’s on your list.
  • Other freebies: like games, baby stuff, etc.

7 DIY gift ideas

Ideas from easy to advanced …

  1. Personalized christmas tree ornament: grab a box of blank-canvas ornaments from the dollar store, markers, and stickers … and have fun!
  2. Vanilla infused vodka for baking, etc.: Better alternative than that boring store-bought “vanilla extract” (cheap vodka is welcome).
  3. Chocolate spoon mixer like this one is delish.
  4. Ready-to-go hot cocoa and marshmallow in a jar: drool-worthy ideas here.
  5. Homemade chocolate and caramel dips: you can find glass bottles at the dollar store and recipes for chocolate and caramel dips are abundant.
  6. Decorated candle holder. You can go from simple elegance to elaborate, some ideas here.
  7. Festive painted glassware: Grab a (wine) glass (you guessed it, from the dollar store), enamel paint (specific for glasses), paint brushes, and … some inspiration! The best news? Sky’s the limit to your pattern and design.

These ideas are by no means exhaustive, but I hope it’s a good starting point to get you thinking of the possibilities.

The bottom line

Gifts, parties, drinks, and yes … food.

We’re entering a time where abundance and indulgence are celebrated. And while, no doubt, there are worse things in the world, over-indulgence only feels good for a moment.

So let’s make sure the reality we come back to after this holiday is a happy one for you and your wallet.

Maria Weyman is Co-Founder of creditcardGenius, the only tool that compares 50+ features of more than 150 Canadian credit cards using math-based ratings and rankings that respond to your needs, instantly. Follow on Twitter and Facebook.