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).

Retired Money: How to avoid pre-retirement financial stress syndrome

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My latest MoneySense Retired Money column looks at how near-retirees can avoid what author Patrick McKeough calls “pre-retirement financial stress syndrome.”

That’s a syndrome he identifies in his new book, Pat McKeough’s Successful Investor Toolkit. McKeough is a regular contributor here at the Hub and you can find the full MoneySense review of his book by clicking on the highlighted text: Investing tips for retired Canadians.

The book is a distillation of McKeough’s long investment career, honed first at The Investment Reporter, and in recent years his own firm, The Successful Investor, and its stable of newsletters. As a member of his Inner Circle and TSI Network, I have long been a proponent of his common-sense approach to investing. He is remarkably consistent in his insistence that investors of any age rely mostly on a conservative portfolio of quality dividend-paying stocks spread among the five major economic sectors (Manufacturing & Industry, Resources, Finance, Utilities and Consumer). And, he never fails to remind you, steer clear of stocks in the crosshairs of what he calls the “broker/media limelight.”

His newsletters are focused variously on Canadian stocks and U.S. and international stocks, and in recent years he has increased his coverage of ETFs.

A cure for PRFSS: Work longer or refine your spending

So what is“pre-retirement financial stress syndrome,” or PRFSS? PRFSS strikes when mature investors realize they may not have enough savings to generate the stream of retirement income they’d been counting on. While some investors are searching for one last desperate “hail Mary” gamble, McKeough advises the opposite: aiming for safer investments.

And while it may not be what some may want to hear, he suggests those suffering from PRFSS adopt one or both of these two solutions: work longer and/or refine your spending. He challenges them to “turn frugality into a game.”

With his focus on stocks, it’s no surprise that McKeough is not keen on bonds, even for retirees and those on the cusp of it. Continue Reading…

If an investment sounds too good to be true, check these four things

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We recommend that investors follow an “evidence-based approach” with their investments.  What does the evidence tell us?  Investors should maintain globally diversified portfolios, keep costs low and select a mix of risky and safe investments that is suitable for their risk tolerance and financial goals.

Once a sensible portfolio is in place, holding on through the roller coaster ride of the market’s ups and downs is key to having a positive long-term investment experience.  One of the biggest reasons investors underperform market benchmarks or even the funds in which they invest is their inability to control the emotional urges which can easily lead to bad investment decisions which knock them off course.

Too good to be true

One temptation to which we often see investors succumbing is the “too good to be true” investment product pitch.  For example, many investments are sold as “equity-like returns with bond-like safety.” Upon closer examination a better explanation for such products is often “equity-like or higher risk with very uncertain returns.”

There are four key criteria that you can use to assess every investment opportunity that comes across your path:

  1. Expected Return
  2. Costs and Fees 
  3. Risks
  4. Liquidity (how quickly you can get your money back when you want it)

The only reason we invest is to earn a rate of return.  The rate of return compensates us for letting someone else have use of our capital rather than just leaving it in a high-interest savings account in the bank.  What type of return is reasonable?  Well, you shouldn’t be surprised to hear that the answer is “it depends!” And what it depends on is the other three criteria: the more risk, the higher the costs and fees and the more locked-up your money is, the higher rate of return you should expect. Continue Reading…

Canadian Trade Relations: The wrong place at the wrong time

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By Jeff Weniger, CFA, WisdomTree Investments  

Special to the Financial Independence Hub

The 24-year-old North American Free Trade Agreement (NAFTA) has never been this close to death, but a resolution could be behind the storm clouds.

Souring trade relations with the U.S. are a shame, because Canada got caught in the wrong place at the wrong time. Consider figure 1. President Donald Trump wants to make a dent in the US$388 billion annual trade deficit with China and, to a lesser extent, the yawning gaps with Mexico, Germany and Japan. But to show strength to them economically and North Korea militarily, he believes he has to treat even friendly actors such as Japan and Canada like hostile players. That became apparent when the U.S. administration imposed global steel and aluminum tariffs, and Canada wasn’t exempted.

Figure 1: Monthly U.S. Trade Deficit/Surplus (USD in Millions)

Monthly U.S. Trade Deficit/Surplus

Talks are starting to get personal, with U.S. President Donald Trump accusing Prime Minister Justin Trudeau of making false statements at a June news conference after G7 leaders met amicably. The Canadian leader then got relatively tough, responding that “Canadians … will not be pushed around.”

With the world’s two best friends in a lovers’ quarrel, the US$13 billion annual U.S.-Canadian trade gap, a rounding error, is somehow a political issue. It could have been resolved over golf.

But not all is lost. Ottawa would be wise to consider — if it is legal — scrapping NAFTA for a bilateral trade agreement with Washington.

Canada ill-advised to sit at table with Mexico

That’s because Canada is ill-advised to sit at the table with Mexico to try to strongarm the U.S. Not now, in 2018, given Mexico’s own specific troubles. Frankly, Mexico’s negotiating calculus is much weaker than Canada’s. The country went to the polls July 1, and leftist Andrés Manuel López Obrador (AMLO) won.  He won’t help Canada one bit because it isn’t politically palpable for him to shoot for a quick resolution. Hostility to the U.S. — or at least standing ground against Washington — has been a political winner for the Latin American “pink tide”1 for years. Playing the tough-talk game with Trump will be one of AMLO’s key rallying cries, and it can only cripple NAFTA. Continue Reading…

Staying on track financially: best practices

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By Gloria Martinez

Special to the Financial Independence Hub

Many North Americans have trouble staying on track financially; there are so many things that can derail even the best-laid plans, from unexpected medical expenses to home repairs or a dip in credit.

However, there are some simple ways you can help keep your finances in check so you aren’t left with a nasty surprise down the road, and it will ensure that your retirement, college funds, or other savings are left untouched.

It’s important to start with a good plan. Sit down, look at your expenses and current income, and create a budget that will be easy to stick to. Don’t cut back on too many things at once; that’s a recipe for failure that will leave you feeling unmotivated to keep trying. It’s also a good idea to keep communication open with your spouse or partner so everyone is on the same page.

Read on below to find out the best ways to stay on track financially.

Buy a Life Insurance policy

The right life insurance policy isn’t just a way to protect your family in the event of your death; it’s also an investment that you can sell down the road should you need to free up cash. Many people do this in order to pad their nest egg a bit for retirement, but it’s important to find the right policy for your needs: both now and in the future.

Set a Budget

Setting a budget is essential when it comes to staying on track with your finances. Create a spreadsheet online that can be shared with your spouse or partner, and update it every day with each new purchase or checking deposit. It’s also a good idea to set an allowance for spending for the week and stick to it as closely as possible, whether it’s for groceries or eating out. You can look for ways to save, as well, such as carpooling, making eco-friendly changes to your home to reduce your utility bills, and trading cable for a streaming service. Continue Reading…

Boosting Retirement Savings during your final Working Years

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Whether you’re a late starter or seasoned saver, the five years or so leading up to retirement just might be the most crucial time to get your finances in order.

Most retirement-ready checklists suggest your final working years is a time to double-down on retirement savings. The idea being that major financial burdens, such as paying down the mortgage and raising children, should be behind you and those savings can be parlayed into big contributions to your retirement nest egg.

High-income earners should look to their unused RRSP contribution room and contribute as much as possible in their final working years. This has the added benefit of generating big tax returns, which can be reinvested into your RRSP or used to pay down any outstanding debts.

Procrastinators have a final chance to break any bad spending habits and set their finances straight. The first step is to draw up a financial plan. Make it a top priority to pay down any remaining debt and get spending under control. You should then have a rough idea when debt-freedom is in sight and from there decide how long to continue working to meet your retirement savings goals.

Retirement income target

The often-used retirement income target is 70 per cent of your final pay, meaning if you earned a $100,000 salary in your final working years then you should aim for a retirement income goal of $70,000 per year. But new research suggests a more realistic retirement income target may be closer to 50 per cent.

Regardless, you’ll need to find YOUR retirement number and determine whether you can reach your income goals through some combination of workplace pension, personal savings (RRSP, TFSA, non-registered investments), CPP, OAS, and/or GIS.

Piecing that puzzle together takes a lot of planning (and still plenty of guess work). No wonder choosing a retirement date can seem like such a daunting challenge!

Taking advantage of your final working years

Continue Reading…