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).

Bob Cable’s case for seasonal market timing (Review of Inevitable Wealth)

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inevitablewealth-266x300While stocks are viewed by most of the financial industry as the main ingredient for creating wealth, it’s well known that the price for higher expected returns is higher risk. The paradox is that in order to increase the odds of creating greater wealth, you have to be willing to lose some wealth at least in the short term.

All of which makes Robert S. Cable’s newly published book (his second) of more than theoretical interest. Inevitable Wealth bears the subtitle Two low-risk strategies that combine to create extraordinary wealth.

We have touched on this book and its belief in the long-term power of equities in a recent review I did at the Financial Post, where I compared Inevitable Wealth to David Trahair’s Enough Bull. You can also find guest blogs by both authors here at the Hub, where the pair make the cases for mostly stocks in the first case, and mostly fixed income (i.e. GICs) in the second.

I had read both books earlier in the summer, well before the extreme market volatility of late August. Ironically, both books would have helped you preserve capital, depending on how you implemented the suggestions: Continue Reading…

Stop Doing #4: Stop Picking Active Money Managers

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stevelowrie
Steve Lowrie

By Steve Lowrie, Lowrie Financial 

Special to the Financial Independence Hub

Last month, we explored Jim Collins’ “Good to Great” suggestion that we would be well served by having a STOP-Doing List to pair with our To-Do Lists.

For starters, we advised investors to STOP reacting to market noise and start heeding the long-term evidence. Another worthy addition to your financial STOP-Doing List is to stop picking active money managers (or hiring someone else to try to do this for you).

As a reminder, my definition of an active money manager is someone who is engaging in some form of forecasting, whether it be picking stocks, timing markets or a combination of both.

Predicting the Unknowable
In our personal and financial lives alike, we worry about so many things that we cannot control. One of the greatest of these things is the future. When speaking with investors about the dangers of trying to accurately forecast the market’s or a stock’s pricing moves, many can accept that it’s difficult to succeed on their own. But the next leap is harder to make. Most investors want to believe that, while they may not personally have the time, energy or expertise to beat the market, they can still turn to well-heeled professional managers to do the forecasting for them.

Financial Services Attracts the Best and Brightest

In most pursuits in life, more practice and more experience makes perfect. So if someone is really good at some occupation or trade, it’s a safe assumption to assume he or she will continue to be good at it in the future.

However, active money management is different. Continue Reading…

Weekly Wrap: The Market’s near-death experience, magazine reverse indicators, the options of frugality

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screen shot 2015-08-27 at 9.14.03 amThe 1,000+ point drop in the Dow Jones Industrial Average Monday morning will long be remembered by investors but, unless you sold everything at market prices in a panic that morning, those that just sat it out (or meditated, as we suggested that morning) were fine by week’s end. You can find a nice recap of the market’s near-death experience in this WSJ article, complete with charts:   U.S. stock swings don’t shake investors.

Still, the scary start to the week was enough for one magazine to create the cover shown to the left. In what some bulls interpreted as a “reverse indicator,” the current cover story of  Bloomberg Businessweek features not just one but several bears on its cover.

In a commentary on that phenomenon, Business Insider’s Myles Udland noted that the market often does the opposite of what magazine cover indicators may be suggesting, which would make a bear cover bullish. Remember, Business Week famously proclaimed The Death of Equities in a cover in 1979, triggering a multi-year bull run.

China & other submerging markets

Mid-week rallies aside, one reason for the continued bearishness is China and other Emerging(“Submerging?”) Markets. One of Bloomberg BusinessWeek’s accompanying stories was entitled Will the Next Recession be Made in China? It noted that after Monday morning’s 1,000 point-plus drop, all markets seemed to be correlated: that “the world suddenly seemed like a very small place.” Continue Reading…

Ottawa starts consultations on voluntary CPP

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jplaporte
Jean-Pierre Laporte

By Jean-Pierre Laporte

Special to the Financial Independence Hub

The Federal Government has started consultations on its newest retirement savings concept: allowing individuals to make voluntary contributions to the Canada Pension Plan.

While details are sketchy, it would appear that basic agreed-upon concepts mean contributions would be voluntary and that employers would not be forced to make or match contributions.

While the Federal Government made it clear that it would not let the Canada Revenue Agency be used by the Ontario Retirement Pension Plan proposed by Premier (Kathleen) Wynne, presumably a voluntary CPP would allow use of the existing machinery to collect these new savings.

The core design issue rests with the form of benefit that this voluntary plan would offer: defined benefit or defined contribution?

If the goal here is to create a supplement to the current CPP benefit, presumably contributions would have to be locked in, and without member investment directions.

The mechanism to convert the fixed defined contributions coming into the supplemental CPP account into defined benefits would have to rely on partial deferred annuities, or self-annuitization.

This would distinguish the Supplemental CPP from an RRSP or TFSA.

No fiduciary responsibilities for employers

Continue Reading…

Investor Toolkit: The right way to calculate your retirement income

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Patrick McKeough, TSInetwork.ca

By Patrick McKeough, TSInetwork.ca

Special to the Financial Independence Hub

Tip of the week: “When you work out a plan for your retirement, make sure that you aren’t basing your future income on over-optimistic calculations that will end up leaving you short.”

Every year as RRSP season heats up, many investors are confident they are taking concrete steps toward a secure retirement. But are those steps based on realistic calculations?

Let’s say you’re 50 and you want to retire at 65. You have $200,000 in your RRSP, and you expect to add $15,000 in each of the next 15 years. To determine if this is enough to retire on, you need to make assumptions about investment returns and income needs.

• What you can expect

Long-term studies show that the stock market as a whole generally produces total pre-tax annual returns of 8% to 10%, or around 6% after inflation. For purposes of this retirement plan, we’ll assume a 6% yearly return, and disregard inflation. Continue Reading…