Exploring the ExPat lifestyle in Mexico’s San Miguel de Allende

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View of San Miguel from top of the Rosewood Hotel (Photo J. Chevreau)

Last week, my wife Ruth and I enjoyed a week’s vacation in San Miguel de Allende, which is located in central (and landlocked) Mexico. We’d been to Mexico several times over the years but never this particular community, which is not handy to a major airport.

It was also our first trip to Latin America in about five years, since we had been taking our February breaks in Florida in more recent years.

Ironically, San Miguel was prominently featured in the old magazine I published around the year 2000: The Wealthy Boomer. At the time, I remember being impressed by the fact the cost of living for semi-retired American and Canadian baby boomers was roughly half what it was in our home countries. This theme was also applied to various Asia locations in a Hub blog last year featuring the book Planet Boomer. See also my post, titled 5 Asian locations where retirement is more affordable than North America.

Trading high taxes for crime?

Back during the days of the tax-and-spend Jean Chretien Liberals, I found the Mexican expatriate fantasy quite compelling, so much so that I listened to Spanish instructional tapes on my long commutes to the National Post’s bunker then located in Don Mills. But the fantasy of becoming a tax exile/early retiree faded once the Conservative Party achieved power and at least the hope of reasonable levels of taxation (the TFSA being a major positive example.)

Meanwhile, the unremitting press over drug-cartel-related crime in Mexico reached a crescendo in the last few years so we stopped visiting for several years.  Read more

Should you talk Findependence over Valentine’s Supper?

Shape of heart from hundred dollars at red background

By Josh Miszk, Invisor

Special to the Financial Independence Hub

Almost half of married couples say their investing styles differ from that of their spouses, and about one-quarter of couples fight over money, according to a BMO survey.

While your romantic Valentine’s Day dinner may not be the best time to discuss finances, most of us agree that these discussions really do need to happen between couples. Here are a few tips that will help contribute to a sound financial future for couples.

 Keep it open and honest

It’s important for couples to be on the same page when it comes to goal planning and how you intend to achieve these goals together. Adopt the “yours, mine and ours” approach and make your finances visible to your spouse so that you both will be in a better place to plan together for the future. For example, some advisors offer a consolidated household online view of their portfolio, which provides easy access to investment accounts for each spouse. Not only does that allow you to have a more holistic view of your position, but having it all in front of you at once can make it much simpler to digest. Read more

Hedging in the Retirement Risk Zone

Retirement_Risk_Zone

WealthyEdge.ca

My latest MoneySense blog reveals some of my personal strategies for dealing with the bear market: How I’m preparing for Retirement in a bear market.

There may be a few ideas for anyone who, like myself, is in the “Retirement Risk Zone.” That’s the five years prior to and five years following your projected retirement date. If it’s 65, the traditional age, then the Risk Zone is between age 60 and 70. Based on the Hub’s demographic user patterns, a lot of people are in that category (although we actually have lots of millennial and Gen X traffic too on both sides of the border).

Towards the end of the blog, I talk about portfolio hedging. I have to credit my fee-for-service financial advisor for most of these concepts. He didn’t want to be named for the MoneySense blog but he is listed in the Hub’s “Guidance” section elsewhere in this site.

It took me awhile to accept that hedging — that is, using options or selling short certain ETFs representing the major indices — is as much a risk reduction strategy as it is a “risky” strategy.

Hedging means trading off some upside for downside protection

The best way I can describe it is that you’re willing to give up some upside in return for protecting the downside. In this respect, it’s not unlike asset allocation or a classic balanced fund. Naturally, a portfolio half in bonds and cash should be less volatile than one 100% in stocks. You’d expect the aggressive portfolio to have the highest returns in a continuing bull market in equities and if you were in a balanced fund would accept the lower returns that let you sleep soundly at night.

To my mind, hedging is similar. In the MoneySense blog I describe a hypothetical situation (close to my own) in which asset allocation across both registered and non-registered portfolios is roughly 50/50. Ideally, registered plans are mostly in fixed income (and my case some US dividend-paying stocks), and non-registered plans are mostly in stocks, especially Canadian stocks.

But when you’re in “The Zone,” you hardly welcome watching half your portfolio sink. Yes, we’re already down 20% and are firmly in correction or bear mode in most global markets. It could be that now is the proverbial buying opportunity, and that’s probably true for younger investors who have plenty of time on their side.

The Long Run eventually runs out

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The Eagles’ late Glenn Frey (YouTube.com)

Not so we aging baby boomers. The deaths the past week of David Bowie at 69 and of the Eagles’ Glenn Frey at 67 should be sufficient reminder (“memento mori“) that we are all mortal. The concept of stocks for the long run is certainly a good foundation for young people and the middle-aged to build growth portfolios but as Keynes also reminded us, “In the long run we’re dead.”

Here at the Hub our slogan is to achieve financial independence “while you’re still young enough to enjoy it.” It’s hard to really enjoy Findependence when you’re worried about the stock market crashing 50% or more, as it did in 2008.

But as my adviser told me at the time — as he sailed through the financial crisis intact via his hedging strategies — you don’t need to stand helplessly like a deer blinded by headlights as markets go south.  If you care as much now about capital preservation than growth, then it follows that you’re willing to trade off some future upside for a lower downside. Asset allocation may get you there and one of the regular contributors to the Hub is a firm believer in retirees relying on cash flow from high-quality individual stocks.

Partial hedge is still net long equities

Currently “we” are only a sixth to a third hedged so we’re still happy if markets recover. As the MoneySense blog warns, if you do start to hedge, it will be inevitable that you may get whipsawed. So if you choose to initiate a hedge by shorting ETFs covering the TSX or the S&P500 or EAFE ETFs, realize that if markets start to rise, you will be losing money on the the sell side of the hedge. (But if you’re net long you’re still “happy”).

Conversely, if they sink further, you will be glad you purchased the “insurance,” as those positions rise even as the indexes sink further.

No guarantees either way but when in investing was there ever a guarantee? And as the other blog notes, you don’t want to try this without the guidance of a good financial planner or investment adviser who is thoroughly proficient at risk management, options and hedging.

Happy 2016, and a few financial New Year’s Resolutions

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

To all readers of FindependenceDay.com, we wish a very happy — and Findependent! –2016.

A reminder that as of January 1st, 2016, 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

Read more

Why the Fed’s lift-off from Zero is good for savers and long-term investors

Fed funds rate-2By Joe Davis

Special to FindependenceDay.com

Vanguard applauds the Federal Reserve’s decision to raise short-term rates by 25 basis points. It marks the beginning of the normalization for a U.S. economy, which has made considerable progress over the past six years. Very rarely (if ever) have central banks successfully exited the zero bound and quantitative easing; we believe today’s U.S. Federal Reserve will ultimately prove the first to do so.

Dovish tightening cycle expected

We expect a “dovish tightening” cycle that will likely leave the fed funds rate below the rate of trend inflation for at least a year. Specifically, our non-consensus view is that we will likely see an extended pause near 1%, regardless of the near-term outlook. Reasons for an extended pause in the fed funds rate would include slower-than-expected growth—given still-fragile global economic conditions and the self-limiting impacts of further U.S. dollar appreciation—and the need and desire for the Fed to begin tapering the size of its balance sheet.

An unequivocal positive for savers and long-term investors

As this has been a widely anticipated decision, we do not expect any material impact on financial conditions in the short term. Indeed, we view the Federal Reserve’s decision as an unequivocal positive for both long-term investors and for savers.

In our opinion, those who claim that raising rates is a “policy mistake” that may derail the U.S. recovery underappreciate the still-accommodative stance of monetary policy and the resiliency of the U.S. economy. There is little to no empirical support showing a strong and material link between a 25 basis point rate hike and future U.S. economic conditions given the still-negative real fed funds rate.

Low-rate environment is secular, not cyclical

For bond investors who fear a marked rise in long-term U.S. interest rates, we believe that the low-rate environment is secular, rather than cyclical, and that credit risk in bond portfolios may be a more important factor in 2016 than duration or interest-rate risk.

Davis_Joe_10_aJoe Davis is Chief economist and global head of Vanguard Investment Strategy Group. 

 

 

 

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