Living a Minimalist Life

Embracing a minimalist life has a lot of benefits. Since the beginning of the year, I have adopted this approach to living my life. The following are the positive things I have seen:

In Search of Bond Yields and Safe Haven

In my previous post, I discussed the role of Bonds in mitigating risk in your investment portfolio. In the era of low interest rates, purchasing a Canada 10-year government bond yielding 2.1% is not going to generate the necessary income to survive unless you have several million dollars to invest. Corporate bonds probably pays 1% or more than  government bonds. I then search for other countries government bonds to see what they yield.

Interest Rates and the role of Bonds/Fixed Income in your portfolio

With global interest rates beginning to rise due to central bank unwinding their balance sheet and low interest rates policies, this is indeed positive news for retirees, prospective retirees or investors seeking a safe haven from the volatility in investing in equities. Mind you, I think we are still in the early stages of a rising interest rate environment. Based on historical evidence, equities will continue to do well in the initial stages of rising interest rates (due to indication of economic growth).

How to identify the FI in you?

How do you know that you are not already a Financial Independence Retire Early)(FIRE) or aspire to be one?  If you answer "YES" to most of the following questions based on my observations and my personal traits, then I congratulate you for joining the bandwagon.

Retirement Planning beyond just Investment

As a practicing Certified Financial Planner (CFP^®), I always advise my clients to look at retirement planning on beyond just the numbers. I can always input different assumptions, i.e. return on investments, allocation between equity and fixed income, longevity and inflation rate to arrive at the desired outcome. Since these are just assumptions used to project outcome for 25 years or more, there could be adverse deviations that could drastically impact the final outcome. A significant and prolonged market correction, and we are certainly due for one, can significantly lower the investment balances.

Investing in ETFs

The cost of investing in Exchange Traded Funds (ETF) is continuing to decrease has become FREE. National Bank of Canada recently announced that investors will no longer have to pay commissions on all Canadian or US ETFs.  Prior to this, Questrade offers no commissions on ETF purchases only, while  Scotiabank’s ITrade also offers no commissions on selected ETFs.   Sooner or later, all major brokerages will follow suit.

How to (almost) double your money in 10 years doing it the old fashion way -by earning it

Chart of S&P 500 

Remember the famous phrase ‘Do As I Say and Not As I Do.’ This is easier said than done, especially in the personal investment world.  I am always tempted to chase the next Facebook stock, or try to catch a falling knife like a J.C. Penney stock thinking that there is  value in bottom fishing. The only way to save myself in this case is that I always have some 'play money' allocated for such purpose, say no more than 2% of my portfolio. 98% of my portfolio is locked in ETFs or low cost mutual fund offered through the company. And as always the case, it tends to end up being a losing proposition. Cost of doing business, I guess. Overall, my net return is reduced by less than 1% a year.  I always advise my clients not to do what I am doing.  Well, some people like fast cars. I prefer the adrenaline of testing my knowledge and chase after stocks. If I found a winner, then I consider myself smart. If I lost money, I blame it on bad luck. 

No Frills Retirement using OAS

To continue with the discussion of OAS, here is a good example on how one can structure his or her retirement planning using just income from OAS. Please email me if you think this is useful or not as I would really appreciate your feedback. My email address is razorback2628@gmail.com

Old Age Security (OAS) Facts and Figures

Unlike the Canada Pension Plan (CPP), which is funded by contributions from employees and employers, the Old Age Security system (OAS) derives its funding by revenue from government.

The Wealth Effect

I watched a documentary on TV Ontario last night called “The Super-Rich and Us.”  Shot mostly in London, England, Jacques Peretti investigate how the rich became richer, and the poor became poorer due to economic disadvantages.  Some of the stats were quite startling. In 1970, a banker in Britain earned as much as a teacher and a GP (General Practitioner or Doctor). The richest 1% of the population controlled 6% of the nation’s wealth; in 1980s, the percentage grew to 11%, and currently the richest 1% controlled more than 15% of great Britain’s wealth.

My Path to Financial Independence

Building a sustainable retirement income portfolio that can withstand market shocks and meet your future expenses requirement is the ultimate goal for everyone seeking financial independence (FI).

For those closer to the normal retirement age of 65, it may be an easier goal to reach compared to millennials seeking early FI.  Given the number of early retires that have been blogging their successes on the internet, one would be forgiven to think that the path is easy to reach.  I truly admire them, but for the vast majority of people, achieving early FI seems an elusive goal.

Buying USD the professional way

With the recent surge in the Canadian currency against the US greenback, I consider this an opportunistic time to purchase US currency for your trip to the U.S. or for investment purposes i.e. buying U.S. listed stocks. The following charts illustrate the most cost effective way by using Horizon USD ETF. Many thanks to prior threads discussing this option, but I actually executed the trade below using my TD Waterhouse account, purchasing US$10,000 and saved over C$200 over buying the US currency from the bank.  Here goes!

Do I have enough to retire?

For many people who spent a working lifetime accumulating wealth in order to retire to the sunset, the decumulating phase represents a major challenge. Is the $1 million or $2 million that I had saved enough to last me during retirement? What if the stock market collapses like it did back during the credit crisis in 2008 and my portfolio decline more than 30 percent?

When is your time up?

Unless you have been working for a long time for a company, you would probably not understand this.  In these days of constant corporate restructuring, when you start reading announcements about long serving employees departing, you often wonder when your turn would come.  Such is my predicament. Do I wait for the tap on the shoulder to indicate that my time is up or do I be brave enough and walk out the door myself instead?  I can’t help but recollect the times I worked together with people who have recently left the company (mostly not by choice).

Canada Food Guide

The new and improved Canada's Food Guide is now available. Do check it out. I find it much easier to determine the variety and amount of food to consume on a daily basis.

Health and Retirement Years

The doctor finally uttered the word “Remission.” All I could felt was joy beyond comprehension. After being on medication for over a year and a half to treat my hyperthyroidism, I can finally stopped taking the tapazole medication to lower my overactive glands. However, I will still need to have T3 and TSH blood testing done to ensure that the recovery is a permanent one.

Do you need life insurance for estate planning?

Being an insurance professional, I always try to approach the topic carefully, especially with friends and relatives because they are afraid that I am trying to sell them insurance policy. I feel the same way too,  sometimes, that I am no different from an ordinary salesman or another annoying telemarketer.  The cold calls that I made to prospects that the insurance agency had purchased from a reliable source ultimately proved once and for all that people genuinely dislike dealing with life insurance phone calls.

Preparing for a Market Crash during Retirement Years

What is the best preparation for a stock market crash? Unless you have a crystal ball in front of you, I don’t believe anyone can predict when that will happen. I know for sure it will happen one day, just like the meteorologist that predicts rain will eventually get it right one day.

Options Trading

Stock Options in the forms of call and puts can be a great tool for risk mitigation. Call it a form of insurance. The auto or house premiums that you keep paying ensure that you are compensated in the event your car is involved in an accident or that your house catches fire.

Funding Your Retirement

When planning for retirement, it is important to estimate where your sources of income are coming from.  You would also need to determine how much you expect to spend. Take a look ath list below, try to estimate how much you would get and need.

Sources of Income (assuming age 65 and above and maximum benefit as of July 1, 2017):

Canadian Pension Plan (CPP) per month:1,114

Old Age Security (OAS):                            584

   Total CPP and OAS                             1,700

Guaranteed Income Supplement (GIS) if applicable: 524.85 maximum

Defined Benefit (DB) Pension Plan if applicable

Annuities

Dividend or interest income from investment portfolio

Part-time work if applicable

Monthly Expenses for 1 assuming frugal lifestyle:

Housing, transportation, food, clothing, and misc (basic lifestyle):            (1,700)

Add: another $800 for travel, dining and other lifestyle needs

If your sources of income exceeds your expenses, congratulations!

If your only sources of income consist of CPP and OAS (total $1,700), you may be able to still afford a minimalistic lifestyle (Expenses = $1,700).  I know I can live like a King! In addition, there are other social benefits that one can qualify at that income level, which would include GIS, hydro rebate, Ontario Trillium drugs and healthcare benefits and others.  

This just goes to show that you should not just blindly be led to believe that you need $1 million dollars in the bank to be able to afford to retire. But of course, we want to retire and travel the world, and live in luxury! This is when the extra planning and savings during your working years will pay off in the latter years. 

Saving an extra $100 per month for 40 years assuming a 5% annual return would provide $150,000. The same $150,000 when used to buy an annuity from a life insurance company would provide a monthly income of almost $700.

Alternatively, find a job with the government (local, provincial or federal), work for 30 years, and you can qualify for at least a  $4,000 a month pension for life! In order to receive $4,000 a month at retirement, one would have to save almost $800,000 lifetime and use the amount to buy an annuity to generate the same $4,000 income.  I know what I will do. Hope you do as well. Problem solved! And good luck getting the public servant job unless you know someone internally.