Review: The Longevity Revolution

41s55U65qaL._SY344_BO1,204,203,200_One of the most useful books I read in preparation for a recent talk I gave on longevity was The Longevity Revolution, published in 2008 by Robert N. Butler, M.D. Apart from being a Pulitzer Prize winner, Dr. Butler is also the founder of the International Longevity Centre.

The book is subtitled The Benefits and Challenges of Living a Long Life. Butler observes that in less than 100 years, human beings have made greater gains in life expectancy than it did in the preceding 50 centuries. From the Bronze Age to the end of the 19th century, life expectancy grew by only 29 years or so, from 20 to just under 50 years. But in the 20th century, Life Expectancy surged another 30 years to reach over 77.

The paradox of a downside to what should be good news

Continue Reading…

Happy 2016 and a few financial resolutions

new years 2016 with champagne and fireworks

To all readers of the Financial Independence Hub, we wish a very happy — and Findependent! –2016. If you count the last few month of 2014 when the Hub launched, then 2016 will be the third calendar year for the Hub and we look forward to many more.

A reminder that as of today, you can contribute a further $5,500 to your Tax-free Savings Account or TFSA. That’s the first thing they remind you of at RBC Direct Investing, one of the main two financial institutions our family uses.

I have to admit that personally I’ve made no formal list of New Year’s Resolutions, although I have declared that I’d like to take my stress levels down a tad, perhaps by using the word “No” a little more often. We’ll see.

In the meantime, for a good formal list of financial New Year’s Resolutions, the Financial Post’s Angela Hickman recently published a good starting point. Click on Five financial resolutions for 2016, and how to (really) make them happen.

Below, I’ve taken the liberty of summarizing the 5 points. Again, click the red link above for the full piece.

1.) I resolve to figure out my finances

2. I resolve to stick to a budget

3. ) I resolve to get out of debt

4.) I resolve to save more

5.) I resolve to stop wasting money

These are all valid suggestions and especially useful for younger folks for whom financial independence is still a faraway goal.

7 eternal truths can also become New Year’s Resolutions

For more ideas, see my series of 7 “Eternal Truths of Personal Finance” that ran in the FP the past summer. Continue Reading…

Peer Pressure Investing

AmanRaina
Aman Raina

By Aman Raina, Sage Investors

Special to the Financial Independence Hub

When I first started learning about investing in university, my training revolved solely around the mechanical side, specifically learning and understanding formulas and financial ratios like Return on Invested Capital, Cost of Capital, and Economic Profit.

I learned to leverage theories like Discounted Cash Flow Analysis and learned to interpret financial statements.  In most of my career, I have continued to lean on these theories and concepts to frame and make investment decisions. I paid very little attention to the behaviorial side of investing which I’ve learned over the years can be just as important.

misbehavingMisbehaving

In Richard Thaler’s book, Misbehaving: The Making of Behaviorial Economics, Thaler discusses this whole notion of how investment decisions are driven more so by peer pressure than by analysis of technical indicators.

Thaler’s anchor point is economist John Maynard Keynes. Thaler felt that Keynes was particularly insightful on this front. He thought emotions or what he called “animal spirits” played an important role in individual decision making including investment decisions

Keynes likened picking stocks to a picking out the prettiest faces from a set of photographs. Keynes observed that the winning photo was the photo that most nearly corresponded with the average preferences of the competitors as a whole. Thus people did not just pick the prettiest face they thought but also the face people thinks other people will think is pretty. It really isn’t a decision about picking the prettiest face then. Keynes believed that people try to anticipate what average opinion thinks the average opinion to be.

Bringing this back to investing, investors — whether value oriented or growth oriented — are trying to buy stocks that will go up in value. The processes may be different but at its purest form investors of all stripes will try to buy stocks they think other investors will later decide should be worth more. And these other investors will make their own investment decisions based on other‘s future valuations.

This is fine … as long as the other people eventually come around to your thinking and bid up your stocks or in the Keynes analogy, pick your photo. The big challenge for investors is then how long are you willing to wait for that to happen because according to Keynes, “in the long run we are all dead.”

When we make an investment decision we are ultimately trying to make an educated guess. To frame that educated guess we rely on measurement and analysis. If we leverage Keynes’ thinking, we also need to get a sense of the mindset or psychology of other investors (i.e. the market) and try to rationally evaluate what they are thinking and how we expect them to behave.

In other words, we need to also understand the mood and behaviour of other investors can help us determine when and if they make will make certain decisions that will ultimately feed into our investment decisions. Keynes’ analogy of picking the prettiest face has tinges of populism and peer pressure. It also complements one of the core cognitive biases that challenge us every day which is Groupthink and Herd Behaviour Biases. In my next post, I will dig deeper into Thaler’s take on herd behaviour and how it plays into the concept of mean reversion.

Aman Raina, MBA is an Investment Coach and founder of Sage Investors, an independent practice specializing in investment coaching and portfolio analysis services. This blog was originally published on his web site and is reproduced  here with permission. 

Are you ready for tax season?

Caroline head shot
Caroline Battista

By Caroline Battista, H&R Block

Special to the Financial Independence Hub

With the start of the New Year, it’s good to take a few moments to prepare for tax season and ensure you are not leaving money on the table. It doesn’t need to be as stressful as many may think – planning goes a long way. Ask yourself a few simple questions that will help you get ready and ensure that 2016 is your best tax season yet:

Are you organized?

Keep all potential tax paperwork in one place so you can easily find it. If you are missing a receipt, request a duplicate now:  don’t wait until April to start finding things. If you moved this year, then now is a good time to notify your bank and past employers so tax documents arrive at the right address. Continue Reading…

Sensible Investing TV Video: How to win the Loser’s Game, Part 4

Fama 2The fourth video instalment of  How to Win the Loser’s Game has been posted at SensibleInvesting.TV and is now housed at Findependence.TV.

This series is essentially a primer on Efficient Market Theory and passive “indexing” investing, whether implemented through index mutual funds or exchange-traded funds (ETFs). The title of the series is derived from Charles Ellis’s classic book on indexing: Winning the Loser’s Game.

The gist of this fourth video is that In order for a transaction to occur, a buyer and seller must agree on a price.   The transaction will be completed if the buyer and the seller reach an equilibrium, that is to say that they both perceive that they are getting value from the deal. Continue Reading…

The new rules on trusts in 2016

ERmos
Ermos Erotocritou

By Ermos Erotocritou

Special to the Financial Independence Hub 

 

Legislation has recently been passed that will eliminate the graduated tax rates currently available for testamentary trusts as of January 1, 2016. No grandfathering for existing structures is proposed.

Therefore, for the most part, the income taxed within a testamentary trust will all be taxed at the highest marginal rate. There will be two exceptions to this:

  • First, graduated rates will apply for the first 36 months of an estate, where the estate is a Graduated Rate Estate (“GRE”).
  • Second, graduated rates will continue to be available in respect of Qualified Disability Trusts (“QDTs”).

Consider Triggering Capital Gains in 2015 to take advantage of Graduated Rates

Where the testator is deceased and the trust is already in existence, consider triggering capital gains in 2015 while the graduated rates are still in effect. Testamentary trusts that do not already have a calendar year taxation year will have a deemed taxation year-end on December 31, 2015. If the trust has an off-calendar year-end, then it is possible that it may have two year-ends in 2015.

For example, an existing testamentary trust could have a regular year-end on October 31, 2015 and a deemed year-end at December 31, 2015. This means that two trust returns will be filed in short succession. The trust will not have the ability to use graduated rates commencing with the year that ends on December 31, 2016. It may be worthwhile for the client to trigger unrealized capital gains at various times during the year in order to take advantage of the graduated rates of tax, in some cases in two different tax periods.

What About 2016?

If the sole reason for the trust was tax-motivated, then it may be worthwhile to wind up the trust after 2015, if the terms of the trust allow for that (the trust should be reviewed by a legal advisor to confirm whether or not it is possible to wind up the trust). However, in many cases there will be other reasons to keep the trust. For example:

  • Trust is being used for control – Was the trust established to maintain control? (e.g. young or financially irresponsible beneficiaries, second marriage, etc.);
  • Trust allows for distributions to lower income beneficiaries – Do the terms of the trust allow the funds to be paid out to lower income beneficiaries to access their lower tax rates? If so, consider keeping the trust in place. It is possible that testamentary trusts may still provide tax benefits where the beneficiaries are in lower tax brackets, as in many cases the income may be paid out to or used to assist the beneficiaries and therefore taxed on their individual tax return.

Example

Assume a client’s adult daughter is incurring ongoing expenses for her own children. If a discretionary trust has been established for the benefit of the daughter and her children, it can still create a significant tax savings opportunity for the daughter. The trustee or trustees can direct that the income from the trust be used to pay for a wide range of expenses that benefit the daughter’s children (private school tuition, music lessons, sports registration fees, post-secondary education, etc.), allowing the trust income to be taxed in the hands of the beneficiaries. It is only where all the potential beneficiaries are in high tax brackets themselves that the income splitting advantages may no longer be available.

  • Trust is necessary to protect the beneficiary from creditors or preserve social assistance – in some cases parents will establish a trust for a disabled person in order to maintain their eligibility for social assistance, or will be established for a child with creditor issues in order to avoid having the assets being seized.
  • Trust will be used to reduce probate on the death of a beneficiary in common-law jurisdictions – When the testator of the existing trust died, probate fees applied on the assets that flowed into the trust. If and when any of the beneficiaries of the trust die, then unless the terms of the trust specify that the trust assets are paid to the dead beneficiary’s estate, the trust assets will avoid probate upon that beneficiary’s death. Whereas if the trust is wound up and assets distributed to each beneficiary, when each beneficiary dies, probate will likely be payable. This may be of particular interest with respect to trusts where the life interest beneficiary is elderly.

Review Trust Terms to see if they should be Re-drafted

Where the trust is not yet established (the client is still alive), your legal advisor should review your will to make sure it is flexible enough to allow any testamentary trusts to be wound up at a reasonable time (i.e. perhaps not when beneficiaries are minors). Once clients lose capacity, it will be too late to change the terms of the trust.

Changes for certain “Life interest trusts”

The legislation also impacts the taxation of spousal or common-law partner trusts, alter ego trusts, and joint spousal or common-law partner trusts.

On the death of the life interest beneficiary (or on the second death in the case of a joint spousal or common-law partner trust), the trust will have a deemed year end at the end of the day of death and all income incurred in the trust for the shortened year (including any capital gains realized on the deemed disposition) is deemed payable in the year to the deceased life interest beneficiary. The result is that the capital gains on the deemed disposition is included in the deceased life interest beneficiary’s terminal year return, not the trust’s return. This may cause unintended consequences.

Example

Mike and Carol are in a second marriage. Mike has established a spousal trust, with his spouse Carol being the primary beneficiary, and Mike’s children from his previous relationship being the contingent beneficiaries. Carol has children of her own who will inherit her estate. Upon Mike’s death, the spousal trust is established. Upon Carol’s death, any unrealized capital gains in the trust are triggered, but instead of the tax liability being assessed to the trust, it is assessed to the estate of Carol.

Mike may want to include a clause in his trust indicating that it will be the trust that is liable for the tax liability, not the estate of Carol. Mike and Carol should speak with their advisors about the implications of doing this, as it may result in Carol’s estate no longer being a graduated rate estate.

Anyone who still has the capacity to change their documents should be urged to review their documentation with a legal advisor to confirm whether or not any changes should be made in light of the new legislation.

Ermos Erotocritou is a Regional Director with Investors Group Financial Services Inc.

 Disclaimer: This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities. Ermos Erotocritou is solely responsible for its content.   For more information, please contact an Investors Group Consultant. Insurance products and services distributed through I.G. Insurance Services Inc.

 

Mission 2016: Discover your Retirement number

Adrian
Adrian Mastracci

By Adrian Mastracci, KCM Wealth Management

Special to the Financial Independence Hub

“My 2016 leadoff sage advice to investors.”

I recommend turning over a new money leaf for 2016, the earlier the better.

If you have but one mission on your plate, make it the discovery of your “retirement number.”

That retirement number is the estimate of how much capital is required to realize your retirement goals: no doubt, the most important calculation for the vast majority of investors.

However, very few investors have anything that resembles it.
Occasionally, I see one that is woefully out of date.

Put aside your preoccupations with performance and picking best investments.
Rather, focus on what you have to do to achieve your goals.

Three major phases of life

Say your life span is near 100 years.
Now loosely divide up your century this way:

  • Up to age 30 – pursue your education.
  • Age 30 to 65 – accumulate your retirement nest egg.
  • Age 65 to 100 – spend it, enjoy it and, perhaps, pass it on.

2016 presents an opportune time to zoom in on your retirement’s big picture.
The critical key is to ballpark the family’s retirement needs. Continue Reading…

The Greatest Prospector in the World

7ca4643d950f4bd09e96de75113a3031-GP_Cover_frontThe Greatest Prospector in the World is the title of a new work of “Business Fiction” focusing on the six “secrets” of sales prospecting success. The author is Ken Dunn, CEO and Founder of Las Vegas based Next Century Publishing.

The six secrets are slowly revealed over the course of a charming tale that begins in the year 1910, a story Dunn describes in the book’s subtitle as “A Historically Accurate Parable on Creating Success in Sales, Business, & Life.

For those who wish to skip on to the six secrets, they are laid out in the short Afterword, in which Dunn acknowledges a literary debt to Jim Stovall’s Ultimate Life Series and Og Mandino’s classic The Greatest Salesman in the World.

Dunn himself is no slouch in the world of sales prospecting: after an early career in police work he started businesses in property management, finance, direct sales and publishing.

You can find more at the book’s web site, www.greatestprospector.com. Also check out Dunn’s recently launched ReadersLegacy.com, which is a kind of Facebook for book lovers. In an interview in his Toronto offices, Dunn described Reader’s Legacy as “Facebook meets Amazon.” The site even features a kind of literary currency called “Lit Coins,” (reminiscent of Bit Coins).

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Kenn Dunn (Twitter.com)

The 6 secrets of Sales Prospecting

I’ll reveal the titles of the secrets but you really need to read the story to get the context. As the cover image shows, it’s all about prospecting for gold nuggets.

Here are the six secrets:

1.) Dress for the Weather

2.) Know what you’re looking for

3.) Use the right tools

4.) Get in the River, Even when you don’t want to

5.) Make it Fun

6.) Work Hard for Six Days, Rest for One

 

 

 

Findependence: A Healthy, Wealthy and Wise 2016

new year goals or resolutions - colorful sticky notes on a blackboard

By Sandy Cardy

Special to the Financial Independence Hub

“’Tis the Season…” but the season for what exactly? “To be jolly” if you stick to the lyrics. But who can stick to the lyrics when all around you there are others hurtling towards excess?

Given that this is the same every year, it would be more factually correct for the lyric to read, “’tis the season for consumption” – and consumption on a truly grand scale. The numbers are mind-boggling. $595 billion in the US alone splurged on holiday season 2013 (from Thanksgiving to Christmas). And likewise for food consumption – an all-you-can eat binge and perfect recipe for calorie-bloat and food comas. So maybe the song ought to go, “‘tis the season for over-consumption.”

Just as over-consumption of credit can cause debt troubles, over-consumption of the wrong foods or lifestyle can leave you with harm

“’Tis the Season …” but the season for what exactly?

“To be jolly,” if you stick to the lyrics. But who can stick to the lyrics when all around you there are others hurtling towards excess?

Given that this is the same every year, it would be more factually correct for the lyric to read, “’tis the season for consumption” – and consumption on a truly grand scale. The numbers are mind-boggling. US$595 billion in the US alone was splurged on holiday season 2013 (from Thanksgiving to Christmas). Likewise for food consumption: an all-you-can eat binge and perfect recipe for calorie-bloat and food comas. So maybe the song ought to go, “‘tis the season for overconsumption.”

The season for overconsumption

Continue Reading…

Merry Christmas!

Christmas Christian Nativity scene of the Star and three Wise Men and Bethlehem in the background

A merry Christmas to everyone who has been part of the Financial Independence Hub in its first full year of existence. We had originally planned to run only the above image today, but — seeing as that may seem a bit stark — decided to run the following that unexpectedly came in via the folks at Mawer Investment Management.

Twas the week before Christmas
And never you fear
We’ll again provide readers
With a review of the year

Currency, oh, currency,
The Swiss shocked us, it’s true
Franc’s affair with the Euro
Is over, it’s through!

And Greek drama continued
Creditor confidence not rising
A third time they default?
It’s still not surprising

Yet the Greeks voted “No!”
To the offer presented
But down to the wire
They took the deal and relented

And China began
To falter in May
Early gains, they reversed
To investor dismay

Then, in mid-August
China devalued the yuan
Making everyone wonder:
What’s going on?

Can China still grow?
We started to doubt
They told major shareholders
Sorry – no getting out

Still, while we acknowledge
China’s problems and vices
Much of this turmoil
Was captured in prices

And in Canada the impact
Of oil price decline
Meant a swift end
To the TSX climb

Emerging Markets faced headwinds
A high U.S. dollar their bane
Will 2016 prove better?
Or is it more of the same?

And far from complacent
Were the monetary authorities
Forty-three saw fit
To make easing priorities

Would the Fed raise rates?
First yes and then no
Investors on edge
Anticipation did grow

And now it’s December
And the world lies in wait
The markets anticipating
A raised interest rate

She did it! Oh my!
Yellen made the decision
But will this new rate hike
Cause world markets derision?

Looking back on the year
Most events weren’t that sunny
And that’s why we stick to:
Be Boring. Make Money.

Happy Holidays from everyone at Mawer Investment Management Ltd.!

Welcome to the Financial Independence Hub!

Welcome to the Hub!

We are a North American portal site dedicated to all things related to Financial Independence: blogs, books, podcasts, discussion forums, web videos and the like. We are not a site about Personal Finance per se. Personal Finance is all about tactics, not long-term strategy. Nor are we strictly a site about Retirement. We believe there is a profound difference between the traditional concept of “Retirement” and the paradigm shift we call Financial Independence. We always refer readers to Wikipedia’s definition of financial independence.

To save syllables speaking about financial independence, we’ve invented the contraction “Findependence.” The state of being financially independent we call “findependent.” Therefore we have also unveiled a mirror site to help save a few keystrokes: www.findependencehub.com. We expect it to get more use as the term “Findependence” gains currency.

(continue reading…)

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