Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

Is it wise to sell in May and go away?

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“Sometimes it’s necessary to go a long distance out of the way in order to come back a short distance correctly.” — Edward Albee (1928–2016), American playwright

Investing plans that pursue flavours of “sell in May and go away” are not vanishing anytime soon. Simply said, the catchy tune is about to ignite the annual rounds once again. Strategies that believe stock investing from November to April have better prospects than other months.

Keen followers of this practice typically sell their equities around May, such as stocks, mutual funds and ETFs. They then repurchase equity investments near November.

“I don’t recommend clearing the deck willy-nilly. Drastic actions are seldom wise replacements for long-term strategy.”

I’m fully on board with the excitement of getting away to a variety of travel destinations. That is the “go away” part. On the other hand, I just don’t buy into the questionable wisdom of selling the nest egg. For me, the “sell in May” part needs much closer scrutiny. Particularly, outlays of disposition and acquisition. Income tax implications also play a part.

Let’s be clear about the strategy. An investor unloads the entire portfolio, then acquires the new version a few months later. This process is repeated year after year, after year. Sounds like quite a heap of cash to shell out for transactions and tax implications.

Potential pitfalls

If only investing were that simple! Examining these pointers helps assess the prudence of wholesale selling: Continue Reading…

What’s your real Risk Tolerance? Chinese Face Reading tells us Listen to your Ears

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By Jane Hawley Edward

Special to the Financial Independence Hub

My Google search for “choosing a financial advisor” yielded more than 30 million hits. It appears to be a popular topic. The recommendations over the first 20 pages were variations on:

Education and Experience

Compensation and potential conflicts of interest

Investment suitability to the client

Yet I propose another characteristic for consideration; one that can quickly help assess one’s risk tolerance and show whether a client and advisor are compatible.

It comes from the ancient Chinese science of Face Reading, where ears are the physical feature that shows how much innate courage and risk-taking ability a person has. The larger the ear, the more comfortable they are gambling physically, in their choice of work or taking risks with money.

To understand the kind of risk-taking you can naturally handle, all you have to do is measure the size of your ear.  Measure it by holding your thumb and index finger in a “C” up to your ear. If it matches in size, you have a small ear.  A large ear is the size of your thumb and middle finger formed into a “C”. A medium ear is between those two sizes.

The broader your ear is across the top, the more comfortable you are with financial and emotional risk.  Chances are that you would be the type who would be more willing to try aggressive growth stocks or volatile markets for potentially larger gains.

In contrast, if your ear is narrow across the top, you’d tend to be a conservative and cautious investor. Your preference would be to invest in safer low-risk vehicles because your main goal is to preserve savings because you feel the pain of losses more intensely than the comfort of gains.

Matching to your financial advisor’s

That’s where matchmaking our ears to our financial advisor’s gets interesting.  A client with cautious, narrow ears may be most comfortable with a similarly narrow-eared, like-minded advisor.  But there’s merit in matching opposite traits; a wide-eared advisor could construct a portfolio that offers protection plus opportunity for moderate growth.  Or a narrow-eared advisor could help curb a high-risk tolerant client from gambling on a poorly diversified portfolio or too speculative an investment.  In either case, together they could temper each other’s risk taking appetite.   The main point is to know what each brings to the equation. Continue Reading…

How Finance Apps & Online Tools will revolutionize Millennial Financial Planning

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By Drew Hayles 

Special to the Financial Independendence Hub

When you’re young, you feel like nothing can stop you. You’re in charge of your own destiny.

Things might look different in hindsight, but don’t worry about that now. The most important thing you can do right now is set in motion a plan to achieve financial independence as soon as possible. With the means to do what you want, when you want, you’ll open doors you never even knew existed.

Before you begin in earnest, make sure you have the right digital tools and apps in your corner. These user-friendly resources all have their place in a coherent, comprehensive financial independence plan, provided you use them properly and consistently.

Perhaps you’re using a few already.

 Digital Budgeting Tools: All Your Money in One Place

 This list of the “best simple and free budgeting tools” doesn’t get to actual digital solutions until the third entry, when it calls out the trusty old Excel spreadsheet.

If you’re in the market for something a bit more robust and hands-off than a wall of spreadsheet cells, consider later entries like Mint or PearBudget (which, to be fair, began life as an Excel tool).

These aren’t professional-grade tools by any means, but they’re nevertheless robust enough to accommodate basic household budgeting and ensure that you spend well less than you earn. Remember to download mobile versions and link your bank accounts for automated cash flow tracking.

 Automated Savings Apps: Ditch the Reminders

 Tired of remembering (or forgetting) to make regular savings deposits? Take the uncertainty out of the process with automated savings apps that quietly transfer small sums to your savings accounts without any input on your end.

Tools like Digit exist wholly for this purpose. More robust online banking solutions like Chime Bank typically have built-in automated savings features that round up every debit transaction to the nearest dollar and sock away the difference

 Educational Videos: DIY, But for Money

 Are you a DIYer at heart? You can learn a lot from high-quality investing and financial education videos. After all, there’s no need to pay for entry-level information and strategic advice when you’ve got a YouTube account to your name. If you need help or want to learn more about specific topics, you can always go straight to the source with questions.

Lightweight Accounting Platforms for Entrepreneurs   Continue Reading…

Toronto Housing: Implications for Canadian Banks

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By Jeff Weniger, CFA, WisdomTree Investments 

Special to the Financial Independence Hub

Is the footing getting shaky in Ontario housing? The Teranet–National Bank National Composite House Price Index for Toronto rose 272.8% from its inception in July 1998 to the peak last summer. Everyone knows nothing of the sort happened to wages. The average Canadian earned $579 a week back then and $988 today, a 69% change.1 Something is amiss, and maybe the bell was rung in July 2017.

The Toronto housing market appears to have turned on a dime, and the home price index is off 7.3% through 2/28/2018 (figure 1). Aside from the index’s 10.9% fall during the global financial crisis, this is the sharpest decline in Toronto residential real estate since the index’s inception in 1998.

Figure 1: Teranet–National Bank National Composite House Price Index, Toronto

When home prices quadruple in the span of one generation, with much of the appreciation in recent years taking on a “just buy before getting priced out forever” mentality, the natural concern is that  the 7% drawdown might be just a taste of what is yet to come.

This is where we are reminded that MSCI Canada has 43% of its weight in financials,2 and almost all of that is in the big banks. Canada is unique in that its banking system, for better or worse, is concentrated in the five national champions.3 The U.S. has 4,888 commercial banks,4 so major indexes like the S&P 500 do not have the same domination of Bank of America or Wells Fargo as the big players do on the TSX. In fact, in the developed world, Canada’s degree of sector concentration is akin to only Hong Kong, with hardly any other industrialized economies as reliant on so few key sectors. Continue Reading…

6 tips for managing your Kids’ bank accounts

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By Emily Roberts

(Sponsored Content)

It’s 2018 and the days of buying your kids a piggy bank are long gone. It makes much more sense to let your kids have a bank account that will not only help them keep their money safe but also teach them how to grow and save it. Unfortunately, it seems as if most modern banks offer little to no incentive for kids to save their money and many focus on charging them as much as possible.

Transaction fees and unexplained charges can easily chew up what little money you deposit. Many banks will continue to charge exuberant monthly fees on small balances to the point where everything that was deposited is gone within a few months. This is why it’s important for you as a parent to find the right bank account for your kids that will help them get the most out of their money and hopefully grow it at the same time.

1.) Check those transaction fees

Most bank accounts come with a PDF or pamphlet (depending on how you apply) that stipulate the charges for every type of transaction. Sometimes these numbers are changed without notice, so be sure to check the fees for each type of deposit, withdrawal, and transaction. Advise your kids to deposit their money through your account or an ATM at the very least, as doing it over the counter is expensive.

2.) Teach your kids about saving

Educating your children about properly managing their money should be done long before they leave for college. Teach them how interest works, how saving their money is the right thing to do, and how to budget correctly. This way, they’ll know how to manage their funds better when they become independent.

3.) Link their bank to your phone number

Doing this means you can see every transaction that goes through. All of these usually come from a single number, so it won’t fill up your inbox. Not only can you see where their money goes, but if its stolen or their bank accounts are hacked, you’ll know first. Continue Reading…