Weekend Reading – Socially Responsible Investing, calling out geoarbitrage, mortgage advice to millennials and more!
Hey Readers!
Welcome to my latest Weekend Reading edition where I share some of my favourite articles from the week that was across the personal finance and investing blogosphere.
I’m still on vaacaaaation! 🙂 For a few more days…
I have some errands to run today and I might go for a bike ride this afternoon albeit it is very hot in Ottawa today so will need to hydrate frequently!
It feels like 34 Deg. C. now and likely to get warmer!
To my fans, friends and dedicated readers to the U.S., Happy Independence Day!
I hope you enjoy your celebrations! Stay well and safe!
Weekend Reading
The Sunday Investor wondered if socially responsible investing is really worth it. He looked at the Jantzi Social Index ETF (XEN) and compared it to another popular Canadian ETF (XIU) you could own.
(Personally, for the higher fee (0.55% MER) I’m not convinced with XEN over XIU along with the fact that the top-5 stocks comprise > 40% of the XEN holdings. That’s not overly diverse.)
Our Next Life went after geoarbitrage and other important subjects some overlook in the FIRE movement.
“If you’ve been planning a retirement overseas, I know this is not a welcome perspective. But it’s important to confront what geoarbitrage really is: using our socioeconomic and geographic privilege to take advantage of others’ worse conditions without changing those conditions for them.”
Dale Roberts at Cut The Crap Investing took a look at Horizons Canadian Dividend ETF (HAL) and the AI technology behind it.
Interesting stuff for sure but I don’t invest in any Canadian dividend ETFs and likely won’t ever again.
Impressive stuff by Our Life Financial when she tallied up her passive income year to date – a whopping $34,394.48. Nice to see I inspired you to put an hourly wage to your income!
Christine Benz confessed she was a former ‘FIRE’ skeptic. Her closing argument is something I’ve been thinking and writing about for years on this blog:
“In the end, I’ve concluded that the “retire early” part of FIRE is a bit of a distraction from the really important part of the movement: the value of mindfully allocating our precious time and money in a way that aligns with our values, life goals, and joys.”
This is why I believe you need to focus on the FI part of FIRE and forget the RE part entirely.
This was my article from the week that was:
GenY Money has some advice for your emergency fund. We keep our emergency fund in a savings account as cash – ready to access if/when needed. There is no way I would use our TFSA nor RRSP for that fund.
Tom at Dividends Diversify has some solutions for some serious money problems.
Reader question of the week (adapted for the site):
Hi Mark,
I passed on the ebook to my daughter. She is looking to buy her first house however I thought she should wait to see how the market reacts to COVID-19 events.
She has lots of questions but wanted to wait until she got closer to actually buying.
Maybe you have some insights you can share on the following:
- what will the market do over the next year?
- what are the important things to look for when deciding on a mortgage?
- any thoughts on alternative lenders?
Being the largest financial investment she will probably make, she wants to get it right.
All the best!
Thanks for your readership and for your questions. I’ll tackle them as best I can!
Q1: what will the market do over the next year?
Boy, wouldn’t we all like to know that one??? 🙂
I recently wrote about how I intend to take advantage of short-term market volatility here so I would offer that guidance to you, your daughter or anyone else actually: continue to be a buyer of assets to buy and hold long-term.
When it comes to the real estate market and future predictions I wish I had all the answers. Locally, I thought it would calm down a bit in Ottawa but it’s still rather hot and seems to be a seller’s market. Prices are jumping higher over time here.
Will that change long-term with COVID-19 impacts really hitting people harder this year? Hard to say but I would definitely argue home ownership is not only an investment decision but a lifestyle decision so definitely ask her to think those things through. Owning a home (or a condo in our case) is neither right nor wrong but it’s far more than a financial decision is what I am saying…
Q2: what are the important things to look for when deciding on a mortgage?
I’ve got a post you can share with your daughter:
More succinctly in terms of actionable steps:
- I would ensure she is pre-approved prior to any property hunting.
- I would encourage her to have a sizable down payment; in cash ready to go; strive for at least 10% and ideally closer to 20% to put down to avoid major mortgage insurance premiums.
- Instead of borrowing to the max always borrow what you can afford. I think a good ratio is to ensure all her housing costs (mortgage, property taxes, maintenance, utilities, updates/upgrades/furnishing costs, etc.) are <40% of net income. That leaves money leftover to eat, save and pay for any transportation costs. I think getting the right balance between any housing and transportation costs are keys to becoming financially independent.
Q3: any thoughts on alternative lenders?
Ya, I’ve never used one for a few reasons. One, I’ve used a mortgage broker to help me negotiate my last two mortgage terms and will continue to do so. I feel they are working with my best interests in mind AND the good ones can negotiate with the larger institutions rather well based on their experiences and rapport. Two, I feel with a larger financial institution I have obtained great prepayment privileges. That has been a big key to killing off my mortgage debt rather quickly. Three, I would be worried about any private lender in particular because those companies can and often do charge higher interest banks than some big banks that deal on much higher volumes. Besides, if credit gets tight those smaller lenders are the first to get squeezed!
I hope that provides some insights and support to her decision making!
Happy investing all and thanks for your reader questions,
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Thanks for the mention Mark, enjoy the last few days of vacation!
Thanks…party over now!
About geoarbritage
AHH! If only we lived on Cloud Nine where all is perfect and everyone instinctively knows what to do to make life better.
It ain’t going to happen. I have seen enough to realize that the is always someone who will game the system. So rather than asking the grocery store how much they paid for their produce and how much of that went to the producer and how much went to the labourers, etc. I just buy the specials and hope for the best.
Once on a plane ride I happened to sit next to a “marketer” who explained to me the business of marketing. Only it was not for the national grocery chain or hardware store but rather for charities. Yeap, charities are now big business, at least for those marketing them. SO I now check to see what the administration costs are before I will donate to a charity. Can’t blame the charity as they are pulling in more money from donors to support their good deeds but I see no need to support the marketers in this endeavour.
I believe in taxes, welfare, employment insurance, health care and will support them through my taxes. It is just the waste that goes on. It is like the people administering the monies are not thinking of how people worked for these monies to be made available for the benefit of the countries citizens. And if you decry some irregularity you get chastised for questioning how things work.
Best example of properly administered funds was two of my friends went to Thunder Bay looking for work. Couldn’t find any so went on welfare for a few weeks until something showed up, When they got their first cheque they went for groceries and also a casse of beer and package of cigarettes. At the counter the clerk processed all the groceries except the beer and smokes. He would not put it on the grocery tab as the monies were for “necessities”. They would have to pay cash for that. Now that is proper administration of the people’s taxes. Now-a-days the civil rights guys would be in there asking how we can expect the welfare people to learn how to live within their means if we do not let them administer their “Taxpayers” own funds. Thing is that a lot of people are on welfare precisely because they can not administer their money. Cruel to say but after all, we are not on Cloud Nine.
So geoarbritage is great – on paper
RICARDO
You raise some great points (in your rant 🙂 – about welfare income and money management. Sadly, those that have very little income or job security do sometimes waste it in the worst possible ways that are not very good for them. Those are likely both educational and behavioural issues to overcome. Not easy!
Mark, thank you for your insight. I have never used a mortgage broker but will explore the benefits of using one.
Appreciate everyone’s input, gives me some things to think about.
My feeling is there would be downside pricing pressure given our Current unemployment situation. Having said that our most recent local (Niagara region) real estate stats show both month over month volume and prices have gone up!
Good stuff and I would consider one since they tend to work for you but get compensated by the lender. Just beware of that bias!
I would think housing should take a small dip with COVID-19 but so hard to predict the future!!
Good luck and thanks for your readership.
Mark
When/If to buy a home has so many intricacies it will make your head spin. Let me add another. In a low interest rate environment like today consider putting 5% down and invest the difference.
400K purchase
5% down is 20K and CMHC insurance would be $15 200 added to mortgage. Payment is $1870 per month
20% down is 80K and no CMHC fees. Payment is $1514 per month making annual savings about $4272 (1870-1514=356x12months=4272)
Invest the saved 60K in a TFSA @5% gives you $3000 annually which you can reinvest or use to pay down mortgage principle.
If you buy the bank stock that holds the mortgage that may mean opportunity for capital appreciation and dividends with increases.
Another factor is how long it takes to save for down payment. You may be better to get into market with 5% down ASAP if it will take you another 5+ years to save a 20% down payment.
Also remember that real estate usually increases by 3-5% annually over time. By waiting you may end up chasing an ever elusive target as your $400K home may be $412K to $420K requiring and even bigger down payment to avoid CMHC fees.
Just another perspective. Happy holidays Mark.
That is something that must be contended with…re: how long it takes to save for down payment and are you losing ground to higher prices over time. I figure if you can’t save faster than “normal” housing inflation (say 2-3% per year on average; certainly been more in some markets for sure…) then you’re likely better off putting less $$$ down and getting into housing if that is your lifestyle decision. This assumes of course you’re getting a great mortgage rate and not buying too much house!
Back to the blog, no more holidays now!
Cheers.
Great round up Mark. Enjoy the last few days of your vacation.
Thanks Maria! All the best. Oh, you should curate all those great top-3 money advice tips for a massive blogpost! I noticed some great ones and some great themes in that Twitter thread.
Hope you are enjoying your summer!
Mark