Ever since inflation began its persistent climb two years ago investors have been nervous about the market and how it would react to rising interest rates and, presumably, falling corporate earnings. Indeed, we’ve been talking about an imminent recession for the past two years and many investors want to know how to position (or re-position) their portfolios to weather the storm.

This sentiment was never stronger than at the end of 2022, after a brutal year for both stocks and bonds. Many readers of this blog wondered if it made sense to abandon their sensible balanced portfolios and move to cash or short-term GICs to stop the bleeding and at least earn some interest.

My advice hasn’t wavered. We can’t time the market with any degree of reliability. Getting out while markets are falling might feel good, temporarily, but getting back in can be increasingly difficult. Historically, markets tend to rise quickly after a sharp decline. That’s why we shouldn’t change our investment approach due to current market conditions. 

Related: 3 Investing Headlines To Ignore This Year

Similarly, earning 4-5% per year on a GIC may seem like a decent return, but when markets are up 6% in one month (see January) you might regret missing out.

So here we are, four months into 2023, with some economic indicators flashing warning signs while other metrics look to be back on trend. In the face of all this uncertainty, markets are…okay! Better than okay, really:

• A portfolio of 100% global equities represented by Vanguard’s VEQT is up 8.31% year-to-date.
• A growth portfolio of 80% equities and 20% bonds represented by Vanguard’s VGRO is up 7.49% year-to-date.
• A balanced portfolio of 60% equities and 40% bonds represented by Vanguard’s VBAL is up 6.62% year-to-date.
• A retirement income portfolio of 50% equities and 50% bonds represented by Vanguard’s VRIF is up 5.04% year-to-date.
• A conservative portfolio of 40% equities and 60% bonds represented by Vanguard’s VCNS is up 5.73% year-to-date.

Markets are extremely noisy in the short-term. But if you simply stopped checking your portfolio daily and zoomed out you might wonder what all the short-term fuss was even about.

This Week’s Recap:

I last posted about how to choose the right asset allocation ETF.

Since then I’ve been busy packing, moving, and unpacking as we get settled into our new home. It was a stressful few weeks (including a one-week period between house possessions carrying the biggest debt load of our lives), but we’re absolutely loving our new place.

I’ll write about our new mortgage decision in the coming weeks, but I’m glad to be rid of the previous mortgage debt and to start moving forward with our saving and investing goals for the rest of the year.

Promo of the Week:

American Express routinely has the most lucrative travel rewards offers on the market and the current promotions for their premium cards are strongly worth considering for travel hackers.

First up, the American Express Aeroplan Reserve Card where you can earn up to 120,000 Aeroplan points (that’s up to $2,400 in value).

Earn 50,000 Aeroplan points after spending $6,000 within the first 3 months. Plus, in the first 6 months, you can also earn 7,500 Aeroplan points for each monthly billing period in which you spend $2,000. That could add up to anther 45,000 Aeroplan points. Finally, you can also earn 25,000 Aeroplan points when you make a purchase between 14 and 17 months of Cardmembership – an incentive to keep the card beyond the one-year mark.

Next we have the American Express Platinum Card, where you can earn up to 90,000 Membership Rewards points when you charge $7,500 in purchases to your Card in the first three months. Membership Rewards can be transferred to Aeroplan on a 1:1 basis, so 90,000 points can be worth up to $1,800 in flight rewards.

Weekend Reading:

Morningstar’s Christine Benz says flexibility pays when it comes to retirement spending. Agree 100%.

Unique real-world data shows early retirement hastens cognitive decline. All the more reason to find your purpose in retirement.

Millionaire Teacher Andrew Hallam says this is when you should worry about your portfolio’s returns.

More advice from Andrew Hallam – what will the stock market do next?:

“There are two reasons we can’t predict the market. One is based on economics. We simply cannot see the future.

The second is based on how human beings respond to economic news. In other words, even if a Nostradamus could, with pinpoint accuracy, provide data on future interest rates, GDP growth, employment figures, individual company profitability and government policies, we still couldn’t predict how stocks will perform.

That’s because economics don’t move the stock market. Human beings do.”

For fans of the show, Succession. Who owns Waystar? What are the Roys worth? WTF is going on? And other pointless questions, answered.

Rob Carrick answers a question I get a lot: This is how much you should plan to spend on dental and medical costs in retirement.

A good episode of the Rational Reminder podcast where Ben Felix takes a deep dive into covered calls and finds them to be a losing proposition:

Who will give you the best mortgage advice? Here’s why a mix of voices is your best bet.

Erica Alini on why soaring rents mean living with roommates can cost $1,000 or more per person (subs).

Robin Powell explains why we’ll likely see another Bernie Madoff in our lifetime.

Investment advisor Markus Muhs shares his thoughts on dividend investing as a strategy and offers some wise words for yield-hungry investors:

“Dividends are a happy side-effect of a well-diversified investment portfolio. They should never be the goal in and of itself.”

A Wealth of Common Sense blogger Ben Carlson looks at concentration in the stock market as the top 10 companies now make up nearly 30% of the S&P 500.

Finally, the brilliant Morgan Housel shares some incredible nuggets of wisdom in this recent post.

Have a great weekend, everyone!

No, I’m not talking about investing in dividend paying stocks. Been there, done that, not going back. I’m referring to paying myself non-eligible dividends from my corporation instead of paying myself a salary.

A quick explanation: My wife and I incorporated our online business back in 2012, while I was still working a 9-to-5 job and Boomer & Echo was just a side hustle. As the business grew, we paid a modest dividend to my wife, who was a stay-at-home mom at the time, and left any remaining funds in the corporation to defer taxes.

Fast forward to 2019 and I quit my day job to focus on financial planning and freelance writing full-time. I took the commuted value of my pension, with the bulk of it going into a LIRA and the remainder paid out as taxable cash. That meant I did not need to take any money out of the business in 2020, while my wife took a small dividend that year.

We paid ourselves an equal amount of non-eligible dividends in 2021 and 2022 to meet our personal spending and savings goals, and to keep our finances simple. But I’ve always wrestled with the idea of whether to pay ourselves a salary, pay ourselves dividends, or to pay a mix of salary and dividends.

The downside of dividends is that you don’t generate new RRSP room, you don’t pay into CPP, and dividends are not a deductible business expense. One further downside is that when we decided to build a new house and apply for a mortgage, our personal income appeared to be much lower than it would have been if we paid ourselves a salary – which may have affected how much we could borrow from the bank.

On the plus side, non-eligible dividends are taxed at a much lower rate than salary. On $80,000 of dividend income I’d pay taxes of about $10,500 this year (13.1% average tax rate). On $80,000 of salary, I’d pay taxes of about $17,100 (21.4% average tax rate). I’d have to pay myself about $90,000 in salary to get the same net pay – and that doesn’t factor in paying the employee portion of CPP ($3,754).

Some business owners consider it a plus not to have to pay into CPP. I disagree. A guaranteed, inflation-protected, paid for life income stream is a wonderful addition to any retirement plan. The trouble is having to pay both the employer and employee portion of an expanding program (costing more than $7,500 per year). If you elect to pay yourself dividends just to opt-out of CPP, you better make sure you have robust savings elsewhere.

My hybrid solution is to pay ourselves a salary up to the CPP maximum ($66,600 this year) and top-up our income with dividends to meet our desired personal spending and savings goals. My plan is to make this switch in 2024, once we get through this complicated year of buying a new house and getting settled.

This Week’s Recap:

Last week I shared the why it’s important to retire with purpose.

Many thanks to Rob Carrick for linking to my tax deductions versus tax credits explainer in his latest Carrick on Money newsletter.

The sale of our house officially went through this week as the buyer’s financing condition was removed. We did it!

Now we have three weeks to get packed and organized for the big move. Fortunately, we have about a week between taking possession of our new house and the new buyer’s taking possession of our house. 

Remember, one of my main financial goals for this year was to set aside $50,000 from the sale of our house for landscaping, window coverings, and some furnishings. No “some day, maybes”. That will leave us with about $100,000 in cash, which will either go towards the new mortgage, back into our TFSAs, or a mix of both. 

Given where interest rates are today, I’m leaning towards the mortgage. 

Promo of the Week:

My DIY Investing Made Easy course shows you exactly how to take control of your own investments by opening your own self-directed investing account, funding the account with new contributions, transferring over your existing accounts, and how to buy an all-in-one ETF that can reduce your investment fees by up to 90% or more.

Nearly every one of my clients who have taken this approach (firing their expensive mutual fund manager and investing in an all-in-one ETF) have told me they were surprised it was so easy to implement.

No more being scared to break up with your advisor. This is your step-by-step guide to moving your underperforming funds over to a self-directed account so you can invest in a globally diversified, risk appropriate, and easy to manage ETF. 

Weekend Reading:

Gen Y Money discusses food inflation in Canada and lists some good tips to help stop the bleeding. 

Why understanding your money scripts can be key to developing a healthier relationship with money and achieving your financial goals.

Not all loyalty point redemptions are the same. Travel expert Barry Choi explains how to calculate their value.

Deanne Gage lists four overlooked deductions to include in your tax return.

How the ‘tax’ on singles has people who live alone feeling the pinch.

Jesse at The Best Interest blog looks at overconfidence in investing:

“Instead, the “perfectly confident” investor knows how diversification, dollar cost averaging, and staying the course will help them in the long run…but doesn’t try to time the short run.”

Markus Muhs on why the vast majority of investors aren’t going to get rich by constantly jumping into “the next big thing”.

Last Week Tonight’s John Oliver nails this piece on timeshares, including how people get into them and why it’s so difficult to get out:

How to have the most tax-efficient retirement income plan without letting the tax tail wag all of your decisions.

Millionaire Teacher Andrew Hallam explains how much retirees can withdraw from their investments each year.

A first-person account from The Globe & Mail: How do I ‘do’ retirement and find the recipe for a happy, fulfilling life?

Finally, Jonathan Clements shares a wish list for how he’d like to spend his time in his 60s. 

Happy Easter, everyone!

Much has been written about the financial side of retirement – do you have enough saved, how much can you spend, will your money last a lifetime? But retirement is part financial and part psychological.

More than just a number in your bank account, retirement is also how you feel about moving on to the next chapter of your life. Indeed, it’s not what you’re retiring from, but what you’re retiring to.

A few weeks ago, financial planner Mark McGrath shared an absolutely gut-wrenching story about his father – a long-time business owner who sold his business, retired, and lost his identity and purpose. The story does not have a happy ending, but Mark felt it was important to share the lessons he learned from this heartbreaking experience:

“We learn about the financial side of retirement but not enough about its emotional and psychological aspects. About how our identities can be intertwined with our careers and our businesses.”

Make sure you know what you’re retiring to.

This was a hard post to write.

I almost didn’t write it in fact. I’ve started and trashed this story many times.

But I believe there are important lessons in this story we can learn from.

Warning: this does not have a happy ending.

— Mark McGrath (@MarkMcGrathCFP) March 14, 2023

The story hit home for many people and has been viewed an incredible 5.1 million times on Twitter. Mark later stopped by the Rational Reminder podcast to talk about the emotional story and why people need to start thinking about retiring with purpose.

I’m grateful that Mark was brave enough to share this cautionary tale as it has forced me to think about my own retirement plans and helped shape conversations I will have with my retired or soon-to-be retired clients.

This Week’s Recap:

You might also remember Mark from this excellent guest post here – 8 overlooked ways to save tax in retirement.

Earlier this week I wrote about building if/then statements into your financial plan.

We had an eventful week – first getting a firm possession date on our new house for the end of April, and then accepting an offer to purchase our existing house.

The timing could not have worked out better, as we’ll have about a week to move and clean-up our house before the new owners take possession.

That beats the last time we moved, when we had to sell early to secure funding for the new house and ended up renting for three months in between.

The financial planner in me has been craving certainty in our situation for more than a year. I can’t wait to get settled in our new house, tally up the final costs, and then get back to our other financial goals – including filling up our TFSAs again and contributing to our corporate investing account.

Promo of the Week:

In case you haven’t heard, the new First Home Savings Account launched today. While most banks aren’t ready to administer the accounts yet, Questrade got a head-start on the competition and has the FHSA available to open and fund today.

Remember, the FHSA combines the best of the RRSP (tax deductible contribution) with the best of the TFSA (tax-free withdrawal for a first home purchase). Contribute up to $8,000 per year, to a lifetime limit of $40,000.

Many of my clients have been eagerly awaiting the account to launch, to either use for themselves or to gift money for their adult kids to start saving towards a first home.

Questrade is the first out of the gate if you want to open and fund a First Home Savings Account today.

Weekend Reading:

Speaking of the FHSA, financial planner Anita Bruinsma explains everything you need to know about the new account.

Erica Alini shares how the CRA resuming child benefit clawbacks has some parents scrambling.

An inside look at how the Bank of Canada sets interest rates. A really good read.

I’ve enjoyed Fred Vettese’s Charting Retirement series in the Globe and Mail. His latest looks at whether older retirees should trust their financial judgement:

“The results show that as people age, there is a decline in their ability to make good financial decisions that is not consistent with their own confidence in managing their money. This suggests the need to automate retirement planning as much as possible, especially after 75.”

Canada Pension Plan expert Doug Runchey explains whether it makes sense to contribute to CPP after age 65 if you’re still working.

Why Canadian bank stocks might not be as special as we think.

A Wealth of Common Sense blogger Ben Carlson answers a reader question about consumption smoothing and whether young people should be saving less.

Prompted by french pension protests, economics professor Trevor Tombe answers the question: How secure is the Canada Pension Plan? The answer: Very.

Finally, the always brilliant Morgan Housel compares the Silicon Valley Bank run to fears about the Brooklyn Bridge collapsing back in 1883:

“You never know what the American public is going to do, but you know that they will do it all at once.”

Have a great weekend, everyone!