Building a Well-Balanced ETF Portfolio

Earning 1-2% in a savings account or a GIC just doesn’t cut it these days. If you’re looking to save for the long term, you need to make sure your money is earning a solid return. With inflation sitting at around 2% if you are earning anything less than that you are actually losing purchasing power on your money.

For many people, millennials especially, investing can seem incredibly daunting. All of us remember the stock market crash in 2008, but what many of us fail to remember is the rebound that happened in 2009. The average annual return of the stock market since inception has been 10%1 and while it might seem the only way to achieve that is by taking a lot of risks, with ETFs there is a less risky, and more sound way of doing so.

ETFs, or Exchange Traded Funds, are easily available to Canadians through an online broker. They are marketable securities that track stocks and bonds in a specific index. For example, an ETF that tracks the S&P 500 would invest in the 90 stocks in that indices to mimic their performance. When you buy an ETF, you are getting a little piece of each company for a reasonable price, and often with lower fees, than what it would cost you to purchase each stock individually. ETFs are a great way for new investors to get into the stock market because one unit of a fund typically goes for around $20-$40, making it very affordable to get your foot in the door.

Ensuring you are invested across many countries and industries is the best way to mitigate your risk when it comes to investing. Traditionally, when looking at an investment portfolio you’d be looking to have a portion in fixed incomes, a portion in Canadian equities, and a portion in International equities. How much you put in each type of fund is determined by your risk tolerance and the length of time you plan on investing for.

For example, a 30-year-old that is starting to invest has at least thirty more years until they retire, and when investing for the long term you would typically weight your portfolio more on the equities side. A good rule of thumb is 100 – your age = the percentage of your investment portfolio that should be in equities. The remaining amount should be invested in fixed income. As you grow older and get closer to retirement the fixed income portion will grow larger because you don’t want there to be annual fluctuations.

The Canadian Couch Potato has a great list of model portfolios that you can base your portfolio off of, depending on who you bank with and what your risk tolerance is. The ETF portfolio is the lowest cost option for new investors and a great way to get exposure across many industries and companies. To leverage this type of a portfolio you need to purchase three funds; ZAG, VCN, and XAW. These three funds will ensure you are reaping the rewards of Canadian and international markets. Below are two examples on how one might invest $10,000 with these funds depending on age.  

Age 30

ZAG – Fixed Income – 30% / $3,000

VCN – Canadian Equity – 30% / $3,000

XAW – International Equity – 40% / $4,000

Age 60

ZAG – Fixed Income – 60% / $6,000

VCN – Canadian Equity – 20% / $2,000

XAW – International Equity – 20% / $2,000

At the end of the day, it’s important to start investing as soon as you can so that you have time and the power of compound interest on your side. You have to do what you are comfortable with while understanding that the market will ebb and flow. Investing for the long term (more than 5 years) means you will benefit from the gradual increase of the stock market and ensure that your money is working hard for you!

1 https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp

About the Author

Janine Rogan is a personal finance educator and CPA based in Calgary Alberta. She is passionate about sharing her financial knowledge with Canadians to help educate them to make money-smart decisions. Through her website, Youtube channel, and community engagement Janine shares solid financial advice that will make a difference in how you manage your money. Check out JanineRogan.com for more details.

Should I Give My Kid an Allowance?

You can’t really teach your child about money until they actually have some. Unless you wait until they’re old enough to get a job, that probably means giving them some form of an allowance.

But if you give a child money with no restrictions, conditions or caveats, chances are you’ll just teach them how to buy $5 worth of candy every week. An allowance should be part of a broader approach to financial education, with the aim of instilling responsibility and patience.

If you’re considering whether or not to give your child an allowance, here are some things to keep in mind.

It Can Teach Them Financial Responsibility

Children who receive an allowance get hands-on experience in money management. They’ll learn the consequences of impulse spending and how to save for what matters. Nothing teaches the value of a dollar more than… well, having a dollar.

When I was six, my parents took me to Disney World for the first time. I was enamored with the souvenirs and merch, and I kept begging them to buy me toys and stuffed animals. They got me something small, but not the oversized Minnie Mouse plushie I was hoping for.

When I turned seven, I started getting a small allowance every week and immediately started saving for our next trip to Disney. I was so excited to buy whatever I wanted without my parents saying no.

As soon as we arrived, I realized how expensive everything was and why my parents only bought me a trinket the year before. I walked away without getting anything, proving my parents right once again.

Don’t Tie It to Chores

In his book, “The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money,” New York Times columnist Ron Lieber says parents shouldn’t connect a kid’s allowance to their household chores.

Just like an adult doesn’t get paid for taking out the trash, your child shouldn’t get paid for contributing to the household. Tying an allowance to chores can backfire when you ask your child to do something extra and they expect to be paid more. Everyone has to do thankless chores once in a while, and children should be no exception.

Explain the Rules

If you’re just starting to give your kids an allowance, make it clear what they should use it for. Will you still pay for their baseball gear or will they need to buy that with their allowance? Will you buy them books and video games or should they save up for those purchases?

Your child should clearly understand their new financial responsibilities. If you expect them to pay for a prom dress with their own money, don’t tell them a week before prom. Give them adequate time to save up. You should also explain if birthday or Christmas gifts will change because of their allowance.

How Much to Give

Finding the right allowance sum for your child depends on their age, your budget and what they’ll use the allowance for. Most children between the ages of 4 and 14 receive somewhere between $3 and $12 a week.

You can also ask friends who have kids the same age to see how much they give.

About the Author

Zina Kumok is a trained journalist and has covered everything from professional sports to murder trials. Now, she specializes in personal finance and has written for brands and publications such as Mint, Investopedia and Discover. She paid off $28,000 worth of student loans in three years.

Things To Know About Consumer Proposals in 2020

Even before the coronavirus pandemic hit, there were mounting concerns about personal debt levels in Canada. While borrowing money can be part of good financial management, debt becomes a problem when it starts piling up and outpacing income.

So, what does the debt situation look like in Canada? The Canadian household debt load has been steadily rising since the early 1990s. Debt levels have spiked more recently, due largely to lower interest rates. This has been especially reflected in high levels of mortgage borrowing. What’s important to note, though, is the ratio of borrowing to household income. A recent report showed that household debt is at $1.76 for $1 of disposable income. Furthermore, Canadians are spending a record 14.96% of their income on debt payments, half of which is being directed towards interest.

Insolvencies are also on the rise among Canadians, particularly among individuals. According to Statistics Canada, consumer insolvencies increased by 13.4% in the past calendar year. It may come as a surprise, then, that the number of bankruptcies have actually decreased by 1.2% during this same period. This downward trend in bankruptcies started in 2009 and can mostly  be attributed to more favourable global economic conditions.

But there’s another reason why bankruptcies have been continuing to decline: consumer proposals. More and more Canadians are pursuing consumer proposals over bankruptcy to deal with insurmountable debt. In fact, consumer proposals increased by 17.9% in the past calendar year, coming to a total of 83,703.  

Why are More Canadians Choosing Consumer Proposals?

Both consumer proposals and bankruptcy result from insolvency, yet consumer proposals enable individuals to keep their assets, more quickly pay off debt and do less harm to their credit score. This is often appealing to those with higher incomes and with valuable assets. The bankruptcy route can result in surplus income payments and loss of assets.

A consumer proposal is a debt relief program authorized by the government of Canada available to individuals looking to avoid bankruptcy. A Licensed Insolvency Trustee (LIT) works on an individual’s behalf to negotiate with the individual’s creditors a percentage of debts to be paid. This amount is distributed over monthly payments usually spread over a period of five years. You can see why this may be an attractive option for many overburdened by debt.

Situations of insolvency, however, still cost enormous amounts of stress, time and damage to your credit rating. In a climate of alarming debt rates and worrisome debt-to-income ratios – and significant societal consumer pressures – how does one avoid hitting the red?  

How to Avoid the Downward Debt Spiral

It’s important to approach financial trends, including the spending and borrowing happening around you, with a healthy amount of caution.

For example, low interest rates may make a mortgage suddenly possible, but does that mean it makes sense for you to buy that house? Make sure to be aware of what percentage of your household income will go towards mortgage payments and interest and how long you will be paying your mortgage. And continually analyze your spending habits. Are you spending an appropriate percentage of your income on rent or mortgage payments, loans payments and personal expenses? Is there enough left over for your slush fund and your retirement savings?

Even if you don’t think you’re in a financially precarious place, it’s a really good idea to seek some solid financial planning advice. Maybe you’re doing ok, but some ongoing habits – or an unexpected major event, like we’re currently seeing with COVID-19 – could put you in a tough spot.

If You Find Yourself in Consumer Proposal…

As we explored above, insolvency and consumer proposals happen to many Canadians. And, they can happen to anyone – even those with high incomes and those who are careful with their money. Major events can happen that cause a cascade of financial duress, and eventually, unmanageable debt.

If this is you, there is good reason to foresee a better financial future. You can take action to boost your credit, save for the future and improve your financial situation right away. Doing so will maximize your short- and long-term financial health and help you move on with your life.

Make Credit Climbing Your Goal

Your credit score is like your financial report card and affords you the opportunity to qualify for loans, credit cards, a house rental and sometimes even a job. The credit scores among those in consumer proposal, unfortunately, drop very low. Nevertheless, it’s especially important to make improving your credit score a top priority during consumer proposal. By building a positive payment history during your consumer proposal, you’ll be poised to maximize your credit score when you complete your proposal.

It’s important for everyone, and particularly those in proposal mode, to keep on top of their bill payments, including to your proposal. Ensure, as well, that you avoid making out cheques with insufficient funds. It’s also a good practice to monitor your credit score and rating on an ongoing basis. This way, you can detect upward and downward movements in your score, as well as identify any possible errors. You can obtain a free copy of your credit report once a year from Equifax and TransUnion, Canada’s two credit bureaus. Canadian companies such as Mogo, Credit Karma, and Borrowell can also send you free monthly updates on your credit score and rating.

Consider a Credit Accelerator Program

If you’re eager to pay off your consumer proposal in less than five years and are interested in improving your credit and building your savings, consider the Climb Accelerator Plan.

The plan is geared towards helping those in consumer proposal boost their credit rating, while building up some savings that can be used to pay off your proposal sooner. Climb works with you to develop an early repayment goal customized to your budget, payment schedule and financial goals. You make pre-authorized weekly, biweekly or monthly payments that Climb reports to Equifax and TransUnion. In the meantime, your money is stored in a secure account and then returned to you as a lump sum at the end of your term.

Conclusion

With consumer proposals steadily on the rise in Canada, and more on the horizon thanks to the devastating financial impacts of the coronavirus pandemic, it’s important to be prepared and know your options. A consumer proposal is a serious situation, but it’s one you can recover from with the right actions.

Still have questions? Reach out today and our team would be happy to provide you with a free credit consultation.

Author: Climb

Spring Clean Your Finances: 5 Helpful Tips

Spring has sprung, and the nasty cold winter is behind us. Many people choose to set financial goals at the beginning of the year, and then when the dark days with little light are upon us they find it challenging to stay on track. Who doesn’t want to be curled up on the couch online shopping with a glass of vino when it’s -30? But now that those days are gone, it’s time to freshen up those financial goals and spring clean your finances!

Here are five things you can do that will make a difference in your finances this spring!

1. Update your net worth

If you’re like most of us, you don’t check your net worth every month, and with the fluctuations in the stock market, that’s probably a good thing. That being said, checking it once a quarter is probably healthy to make sure that you are trending in the right direction. Your net worth is calculated by adding up all of your assets (what you own) and subtracting your liabilities (what you owe). Regardless of whether it’s positive or negative, you want this number to continue to trend upwards. Checking in once a quarter will help you stay on track.

2. Set your savings goals

Maybe you have a wedding to attend this summer, or perhaps you’re going to try and getaway in the fall for a family vacation. A quarter of the year has already passed, which means you have less than six months to save! It’s time to figure out how much these major expenses are going to cost you and break that up into bite-size savings amount you can automatically transfer a few times per month! That way you can stay out of debt while enjoying your life.

3. Pursue a side hustle

Cutting back is always hard, no one likes to feel deprived, and if done for too long many people will find themselves in a situation where they feel like they have to binge buy and end up racking up credit card debt. Instead of always cutting back it can be easier to earn a little extra to fund the fun in your life. Find something you can do to earn an extra couple hundred dollars per month and you’ll see that you’ll be in a much happier financial position.

4. Check your credit score

With the holidays passed, and the bills paid, now is a great time to check your credit report/score. You’re looking for any anomalies when it comes to accounts that are opened or balances unpaid that you don’t know about. If this happens it is important to contact Equifax and the financial institution right away. There are a number of free online services that allow you to check your score and make sure that it is trending upwards. Having a strong credit score means you’re more likely to be approved if you are applying for a mortgage or loan.

5. Make and extra debt payment

This may not seem like a fun one but making an extra debt payment in the first half of the year may motivate you to continue to throw extra money at your debt. Whether it’s student loans, a mortgage, or your credit card the faster you can get to debt free, the faster all of your paycheque will be yours again! Even if it’s only a couple hundred dollars, every payment towards the principal helps to reduce how much interest you will end up paying and how long you have your debt outstanding.

About the Author

Janine Rogan is a personal finance educator and CPA based in Calgary Alberta. She is passionate about sharing her financial knowledge with Canadians to help educate them to make money-smart decisions. Through her website, Youtube channel, and community engagement Janine shares solid financial advice that will make a difference in how you manage your money. Check out JanineRogan.com for more details.

The Best Way to Sell Your Things

With the growing popularity of minimalism and the KonMari method, spring cleaning has never been more in fashion. It’s invigorating to clear out the stuff you don’t need and make space for the stuff you actually care about.

So if you’re already getting rid of unused items, why not make a little money in the process? Here are some of the best ways to sell your things, from mint condition collector’s items to the junk you have laying around in your garage.

eBay

Still one of the most popular sites for online sellers, eBay is great if you have a lot of small, valuable items to sell such as electronics or video games. These will have low shipping fees and be easy to pack up.

You can sell items through the traditional auction format or through eBay’s “Buy It Now” feature. The latter lets you create a minimum price, but potential buyers can still haggle with you.

eBay takes a small portion of all proceeds, usually around 10%. Make sure to factor this in when deciding how to price an item.

Kijiji 

Sites like Kijiji are perfect for selling furniture, musical equipment and other heavy items that are too large to ship. Look for similar posts on Kijiji to decide how to price something. Posting on Kijiji is free for a certain number of ads

Yard Sale

Yard sales are perfect for selling things that aren’t valuable, like books, craft supplies or knick knacks. You won’t be able to make much on individual items, but it’s a great opportunity to clear out unused junk and make a few bucks in the process.

Advertise your yard sale ahead of time, particularly with signs pointing to your house. Post about it in your local online communities and be clear on what you’re selling, whether it’s baby clothes or home furnishings.

Pick a warm day, set up shop early and display your items so customers can pick through them easily. Keep your prices low and be prepared for customers to bargain.

Specialty Sites

If you’re getting rid of collectibles or unique items, you might be better off selling them on a specialty site aimed at specific buyers. These sites will have serious collectors and connoisseurs who will appreciate what you’re selling.

For example, if you have a large collection of Wedgwood plates, find a site for people interested in fine china. You can also contact local antique or vintage retailers to see if they’d be willing to buy or consign your items.

General Tips

Make sure to take lots of photos before posting an item. If you sell online, buyers can leave negative reviews if you don’t describe a product accurately or forget to note any damages. They can also request a refund, which usually means you’ll have to pay for them to ship the item back to you.

If you’re taking care of shipping costs yourself, find an accurate estimate before listing your item for sale. If you undercharge for shipping, you could end up wiping out your entire profit margin. Sites like eBay can calculate shipping costs automatically based on the dimensions of the box and weight of the object.

Decluttering your home? Let Climb declutter your finances! Click below for a customized plan to help get your finances in order.

About the Author

Zina Kumok is a trained journalist and has covered everything from professional sports to murder trials. Now, she specializes in personal finance and has written for brands and publications such as Mint, Investopedia and Discover. She paid off $28,000 worth of student loans in three years.

3 Common Home Buying Mistakes (and How to Avoid Them)

With spring officially here (finally!), let’s continue our discussion on real estate. In my last article, we talked about the importance of being pre-approved for a mortgage before you go house hunting. Once you have your finances in order, only then can think about buying the property itself.

House hunting is an exciting time, but if you’re not careful you can make a costly mistake along the way. Let’s take a look at three common home buying mistakes and how to avoid them.

Mistake #1: Not Being Flexible with Your Home-Buying Needs and Wants

Before you go house hunting, it’s a good idea to come up with a list of needs and wants. Examples of need include three bedrooms and two bathrooms and wants include a Jacuzzi and deck.

While it’s helpful to have a list of top 5 needs and wants, be careful not to go overboard. If your list of needs and wants is too long and you’re not willing to compromise, it could take you a very long time to find the ideal home. I’m not saying that you should compromise on something crucial like the number of bedrooms, but if a home has something you’re not particularly fond of like carpeting in the basement, that can be fixed. I hate to break it to you, but if you’re looking for the perfect home, you could be looking for quite a while.

Mistake #2: Not Focusing on the Bones of the Home

Another mistake to make when you’re house hunting is focusing on the wrong things. When you’re looking at properties, it’s easy to focus on the cosmetics and overlook what I liked to call the “bones” of the house. Cosmetics are things like a newly renovated kitchen and bathroom, hardwood floors and paint colours.

While those things are all nice, make sure you don’t overlook the most costly parts of the home. I’m talking about the roof, windows and furnace. Those can end up costing you a pretty penny to repair. Likewise, see if there’s any dampness in the basement. Waterproofing your house can be one of the most costly things a homeowner can face.

Mistake #3: Skipping the Home Inspection

When you see a place that you like and five other people are interested, it’s easy to skip the home inspection and go in with an offer without any conditions. But by doing this, you’re leaving yourself open to all sorts of problems later on. Not only does getting a home inspection offer you piece of mind, it can be a good negotiating tool. If you find something wrong with the property, you could ask the seller to knock an amount off the selling price to compensate you for it.

So, you want to get a home inspection, but you’re worried that you’ll lose the house since there are other people making offers. What can you do? You can get something called a “pre-inspection.” A pre-inspection is when you get your home inspection done before you make an offer on a property. By doing that you don’t have to include it as a condition, improving your chances of getting the property.

About the Author

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedInTwitterFacebook and Instagram.