The FIRE movement (Financial Independence, Retire Early) has taken the personal finance blogosphere by storm of late, with numerous bloggers chronicling their journey towards financial independence. Several high profile bloggers have even achieved FIRE, gaining wide spread attention from mainstream media and leading to book publishing opportunities.

The quest for financial independence certainly isn’t new and often boils down to a desire to ditch the cubicle and “find your passion”, whether that’s blogging full-time, writing a book, or living a location-independent lifestyle.

But there’s an air of privilege surrounding most FIRE stories: A stereotypical tale is the high-earning, childless couple living in remote U.S.A., saving 70 percent of their income and looking to retire by 40.

There’s also the question of what early retirement actually means. Leaving a corporate job to pursue your passion isn’t retiring; it’s called a career change. Instead of answering to an employer, you answer to yourself. While that’s a dream pursuit for many of us, by definition it’s called entrepreneurship, not retirement.

The FIRE community is also dominated by men, a fact not lost on lawyer and freelance writer Madeleine Holden, who documented the batshit lengths these guys go to retire by age 40. Gender discussions are quickly shutdown on FIRE forums, ignoring the unique challenges of saving while female.

Another problem with FIRE is the idea that anyone can just pull up their bootstraps and save enough to leave their job within a short period of time. In conventional FIRE wisdom you need to save 25x your annual expenses before you call it quits. That’s a tall order for most of us, especially those living on a modest income or dealing with any number of challenging circumstances (health, location, etc.). It’s easy to preach FIRE from a position of privilege.

Michael James argues that FIRE is within reach even for those with modest means, but the problem he says is that we design expensive lives for ourselves with big houses and long commutes.

“A few good early choices can set you on a great path for life. But make the wrong expensive choices early and you’re committed to a path of paying off debt for decades.”

My issue with the FIRE community is not the pursuit of financial independence but the Derek Foster-ian “I retired early, and you can too” articles that fail to highlight the unbelievably extraordinary circumstances that lead to someone retiring at 38.

It’s no secret that I’m pursuing financial independence, but the idea of early retirement hasn’t entered the equation. If I decide to leave my public sector job it will be to continue promoting financial literacy through this blog, writing my column at the Star, and through my fee-only financial planning practice.

When work is highly enjoyable and fulfilling it ceases to become “work” and the thought of retiring full-stop rarely enters the mind. That’s my FIRE pursuit.

This Week’s Recap:

On Monday I wrote about solving the home bias in my portfolio by switching to Vanguard’s new all-equity one-ticket global ETF (VEQT).

On Thursday I offered some suggestions for what to do with your tax refund.

Promo of the Week:

TD Bank has released a trio of excellent offers for its travel cards that are worth a serious look for travel rewards collectors. First up, you can get up to $400 in travel and the first year free when you sign up for the TD First Class Travel Visa Infinite Card. I’ve used the card in the past but have never seen an offer this strong. Best to redeem these points for hotels on Expedia.

If you don’t meet the income requirements for the Visa Infinite version you can grab the TD Platinum Travel Visa Card. You’ll still get the first year free and up to $250 in travel rewards.

Finally, the best offer of the bunch is the TD Aeroplan Visa Infinite Privilege Card, which comes with a steep annual fee ($399) but offers a juicy 50,000 Aeroplan miles (25,000 miles after first purchase and another 25,000 miles when you spend $1,000 in the first three months).

Weekend Reading:

It’s been a while since the last U.S. recession (2007). Morgan Housel shares his thoughts on what lies ahead.

Squawkfox blogger Kerry Taylor looks at behavioural economics and how to rewire your brain to master money.

The Irrelevant Investor Michael Batnick explains the irrational behaviour of what happens when you win and lose.

Speaking of irrational behaviour, PWL Capital’s Ben Felix thinks one of the single biggest challenges for investors is understanding that dividends do not matter:

An interesting piece on why insurers write off your car rather than paying for the repair. It seems like new tech is to blame:

“We actually see more cars getting totalled than we have in the past because the cost to repair them is higher than it has been historically.”

Downsized: How a late-career job loss during prime earning years can derail retirement plans.

Are you the money person in your relationship? Here’s why that’s problematic.

On that subject, Mark Goodfield of the Blunt Bean Counter blog shares some advice to help bridge the financial literacy gap with your spouse.

Is your company Group RRSP any good? Here’s how to make the best of a bad plan.

Nick Magguilli says the difference between the natural world and the investment world is there are no laws, only tendencies.

Cut The Crap Investing blogger Dale Roberts takes a long look at annuities and reviews the excellent book, Pensionize Your Nest Egg.

Finally, this father was shocked to learn the incredibly high fees charged on his child’s RESP, which his “advisor” put into segregated funds with an MER of 3.61 percent. Criminal.

Have a great weekend, everyone!

**This is a sponsored post written by me on behalf of Alterna Bank. All opinions are my own.

Canadians are usually an optimistic bunch come tax season, with the majority of tax filers expecting to get a refund. In fact, many of us count on a tax refund to pay off debt, cover the cost of a vacation, or to further our savings goals.

Most financial experts, including me, will tell you that getting a tax refund is not necessarily a good thing – more like a case of bad tax planning.

A tax refund means that you paid more than your fair share of taxes throughout the year, essentially lending the government an interest-free loan with your own money!

That doesn’t stop the majority of us from getting excited – down right giddy – over the prospect of receiving a big, fat, juicy tax refund. But, given the knowledge that a tax refund is just the government giving back your hard-earned dollars, what you do with that refund can make a big difference in your finances.

What To Do With That Tax Refund?

Let’s say after filing your taxes you expect to receive a $3,600 refund later this spring. What that really means is you overpaid your taxes by $300 per month last year.

Now think about what you want to do with that refund. $3,600 is a lot of money to receive in a lump sum and it’s precisely the type of refund that gets people thinking about buying a new television or going to Las Vegas for an epic long-weekend.

We’ve already established that getting a big tax refund is not a good thing. It means you’re paying too much tax, or more likely, your employer is withholding too much tax at the source.

If you make regular RRSP contributions, for example, or expect to pay a lot in child-care expenses, then you should fill out form T1213 (Request to Reduce Tax Deductions at Source) and then ask your employer to reduce the amount of taxes withheld on your paycheque.

With proper tax planning like this you might have been able to save that $300 per month last year. In this case, would you sock away $300 every month to save up for a new TV or a trip to Vegas in the spring? Probably not. So why do we feel it’s okay to spend our tax refund on a large impulse purchase?

Want a more responsible plan for your refund? Here’s a list of smart things to do:

• Pay off credit card debt
• Pay down a line of credit
• Put a lump sum onto your mortgage
• Spend some and invest the rest
• Invest it back into your RRSP
• Contribute to your TFSA
• Contribute to your child’s RESP
• Donate it to a registered charity

Another option is to do nothing. What I mean by that is you might not have a financial goal that requires your immediate attention, but you’ll eventually need to access the cash.

Maybe you need to start an emergency fund or build on an existing one. Or, perhaps you want to buy a house in two or three years and need to add to your down-payment fund. Maybe you’re planning a summer holiday and need to save some cash for a few months.

In this case the best place to park your refund is inside a high interest savings account – one that gives you a chance to earn a decent interest rate.

One to consider is Alterna Bank, which has a Tax-Free eSavings Account and High Interest eSavings Account that both pay 2.35%* interest. Both accounts have no fees and no minimum balance requirements which makes them ideal for short-term savings. Online banks like Alterna consistently offer higher every day interest rates with no gimmicks and no teasers. Equally as important, they are CDIC insured.

Final thoughts

Although we tend to get excited about the idea of a large tax refund hitting our bank account in April it’s important to understand where that tax refund comes from – you are paying too much in taxes throughout the year.

Getting a tax refund is not an excuse to throw caution to the wind and spend more just for the sake of spending. In fact, if you’re serious about getting the most out of your RRSP contributions then the responsible thing to do is to take your entire refund and put it right into your RRSP.

Less optimal, but perhaps equally responsible is to put that refund into your TFSA or onto your mortgage as a lump sum payment.

Finally, if you just want a place to stash your cash and earn some interest for the short-term, look for a high interest savings account.

Remember, a tax refund is not a windfall or free money from the government. It’s your money! You lent it to the government and now they’re giving it back to you. Now is your chance to put that money to good use.

*Interest is calculated daily on the closing balance and paid monthly. Interest rate is annualized and subject to change without notice.

Canadian investors tend to suffer from home bias – a preference to hold more domestic stocks over foreign equities. This is actually true of investors in most countries, but it’s particularly troubling in Canada where our stock markets are highly concentrated in the financial and energy sectors.

The federal government could be partially to blame for our home bias tendencies. As recently as 2005 the government imposed a limit on the amount of foreign content allowed in RRSPs and pension plans. This cap was introduced in 1971 to help support the development of Canada’s financial markets but was scrapped in the 2005 federal budget, freeing Canadians up to invest abroad.

It’s well known that Canada makes up less than 4 percent of global equity markets (2.7 percent, to be exact), yet 60 percent of the equities in Canadian investors’ portfolios are in domestic securities.

Even most model ETF and index fund portfolios have Canadian investors overweighting domestic equities, holding anywhere from 20-40 percent Canadian content.

The result is a portfolio that is more volatile and less efficient than one with international equity diversification. Indeed, investors with a Canadian home bias are taking risks they could have diversified away by increasing their allocation to global equities.

My two-ETF portfolio

So how does my portfolio stack up? When I switched to my two-ETF solution, made up of Vanguard’s VCN (Canadian) and VXC (All World, ex-Canada), I chose to have an allocation 20-25 percent Canadian stocks and 75-80 percent international stocks.

That allocation would be relatively easy to monitor and rebalance if it was simply help in my RRSP. Whenever I added new money to my RRSP, I’d simply buy the ETF that was lagging behind its initial target allocation.

But I complicated things recently when I started contributing again to my TFSA. I wanted to treat my TFSA and RRSP as one total portfolio and keep the same asset mix in place. Since my RRSP was much larger than my TFSA, I decided to hold mostly foreign content (VXC) in my RRSP while putting Canadian stocks (VCN) in my TFSA.

This worked out great for several years but now I’ve run into a second problem; I’m contributing to my TFSA at a much faster pace than my RRSP. That’s because I’ve maxed out all of my unused RRSP contribution room and, due to the pension adjustment, I get a measly $3,600 per year in new contribution room.

Meanwhile I still have loads of unused TFSA contribution room and so I’ve been socking away $12,000 per year for the past two-and-a-half years. I hope to continue at that pace for many more years until I’ve completely caught up on all that available contribution room.

The result is a portfolio that is becoming increasingly more tilted to Canadian equities. At this rate, if I continue filling my TFSA with VCN, my portfolio will have more than 30 percent Canadian content in five years, and nearly 40 percent Canadian content in 10 years.

My Home Bias Solution

I’m considering a change to my two-fund portfolio. With the introduction of Vanguard’s new all-equity asset allocation ETF – VEQT – I could turn my two-fund solution into a true one-fund solution and make investing even more simple.

Not so fast, though. When I looked under the hood of VEQT to see the underlying ETFs that it holds, I noticed a heavy tilt towards Canadian equities:

• Vanguard US Total Market Index ETF – 39.1%
• Vanguard FTSE Canada All Cap Index ETF – 30.1%
• Vanguard FTSE Developed All Cap ex North America Index ETF – 23.3%
• Vanguard FTSE Emerging Markets All Cap Index ETF – 7.5%

I don’t want a portfolio made up of 30 percent Canadian equities. If anything, I want to reduce my exposure to the Canadian market.

Here’s what I’d like to do: Replace VCN with VEQT.

What that means is my RRSP will hold nothing but VXC, while my faster growing TFSA will hold VEQT.

At the end of 2019 my new two-ETF portfolio would look something like this:

Because VEQT is made up of 30 percent Canadian equities I would have approximately 4.9 percent of my overall portfolio weighted to Canadian markets (much more aligned with its global weight).

But as I continue making larger TFSA contributions each year the percentage of Canadian content will gradually increase (just less quickly than if I had been contributing straight to VCN each time).

At the end of 2024 my portfolio would look like this:

The Canadian content from my ever-rising VEQT would still make up just 9.4 percent of my overall portfolio.

By then I’ll have caught up on my unused TFSA contribution room and so I’d only be able to put in the annual TFSA maximum.

The growth of VEQT as a percentage of my overall portfolio slows, and so the percentage weighted to Canadian equities only creeps up to around 12 percent by the year 2040.

Final thoughts

I want to tame my home bias for Canadian equities while keeping my portfolio as simple as possible.

By replacing the Canadian equity ETF (VCN) with the new Vanguard 100 percent equity asset allocation ETF (VEQT) I’m able to keep my simple two-fund solution intact.

Meanwhile I solve a potential diversification problem by reducing my home bias to Canadian stocks and maintaining proper global diversification inside my portfolio.