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How your money can make an impact

Money can do so much more than simply meet your needs and provide you with entertainment. Money can also be a tool to amplify your voice, to fight against injustice, and to support virtuous causes. In fact, every dollar you spend has an impact on society. 

To point out the obvious, not everyone has the energy or resources to prioritize social and environmental justice, but for those who do want to spend more consciously in order to have a positive impact, here are our best tips.

Boycott harmful brands 

An often underestimated, yet powerful, act is boycotting (the refusal to buy and consume a company’s products or services). Boycotting really does make a difference because when it happens on a large scale, it forces brands or companies to change their destructive practices.

The idea isn’t necessarily to eliminate the consumption of every single product by companies with questionable practices, but to favour brands that truly deserve your business. Examples of opting for ethical businesses instead of corrupt ones include  shopping at independent greengrocers or farmer’s markets rather than at supermarket chains, buying clothes in consignment stores rather than from fast-fashion brands, buying books in a neighborhood bookstore rather than online, and so on. 

We can’t always make “perfect” buying decisions, but we can try to make better choices according to our budget and what’s available. If you don’t know where to start, you can try consulting Ethical Consumer, which lists various boycott campaigns against large companies.

Support honest companies by spending

Once you’ve decided what to boycott, it’s time to buycott. This term refers to consuming in a more ethical and responsible way. The goal is simple: realize the power of your money, and turn to brands that have a positive impact on people and the planet. Don’t hesitate to consult this small directory of eco-responsible brands, classified by category.

Buycotting is about making conscious choices. For example, rather than buying your coffee from a large American brand whose name starts with an S, you may choose to get your caffeine fix from the independent (and ethical) coffee shop near your house.

Ever find yourself browsing products at a store and wondering if they’re sustainable and honest? Try using the app Good on You app, which makes it easier for consumers to shop in an ethically responsible way by compiling the impact of over 3,000 brands on people, the planet, and animals.

Invest in SRI funds

Socially Responsible Investing (SRI) is a simple and effective way to give meaning to your money. SRI funds select companies according to ESG (Environmental, Social and Governance) criteria and not just financial ones. Moreover, contrary to what one might think, they are no less efficient than traditional funds! So it’s a great way to combine profitability with ethics. 

Want to get started? With Moka, you can invest your money in the Moka SRI fund, which invests in ETFs that address today’s major social and environmental challenges. Based on your investor profile when you sign up, we’ll assign you one of five diversified SRI portfolios that is most suited to your personal and financial goals.

Support charities by making a donation

Cleaning up the oceans, planting trees, helping people in need, rescuing animals, supporting local farmers…there are an untold number of causes that are of concern to Canadians.

No matter what concerns you personally, there is bound to be a non-profit that addresses these issues and that you can support regularly or on an ad hoc basis. If you’re not sure which organizations to support, you can start by consulting Canada Helps, which connects donors with over 86,000 registered charities, or simply search online for a cause or organization you’d like to support.

Please remember, there is no donation too small! Even $10 dollars per quarter is better than nothing at all.

Learn to spot greenwashing

Greenwashing is a marketing strategy that consists of showcasing a company’s “green” practices, when the brand or product is not, in fact, ethical or sustainable. To help you flush out false promises and deceptive arguments, the Government of Canada has published a series of anti-greenwashing questions that can be consulted online.

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Long term growth: Why we’ve updated the Moka investment portfolios

Everyone deserves to live the life they want and we believe Canadians should have easy access to tools that will help them achieve their financial goals. We also know it’s possible to build wealth if you invest early and often; but when it comes to investing, there’s a lot to take into account. From your personal financial situation and goals to your risk tolerance and time horizon, these factors should all be considered when determining which investment strategy is best for you, and revised from time to time to reflect changes in your life. 

Similarly, as financial markets evolve and new investment opportunities become available, these changes can affect your overall investment strategy along with where and how much you invest.  

Today’s financial markets aren’t the same as they were at the start of the COVID-19 pandemic, just like they aren’t the same as they were during the 2008 financial crisis. That’s why our portfolio managers are regularly reviewing our investment models and fund strategies to ensure they best reflect today’s markets.

Based on rigorous research and thoughtful feedback from our users, we’ve made select updates that are intended to provide you with competitive portfolios that can help you achieve your financial goals. 

These updates include new names for all of our investment portfolios and refreshed investment strategies on select portfolios:

New portfolio namesPrevious portfolio names
Cautious Income Conservative
Balanced Income (modified SRI portfolio)Conservative-Moderate
Balanced (modified portfolio)Moderate
Balanced Growth (modified portfolio)Moderate-Agressive
Equity Growth (modified portfolio)Agressive

All our investment portfolios are made up of allocations to one or multiple investment funds. So, depending on your financial goals, risk tolerance and time horizon, the money in your portfolio will be allocated to one or a combination of investment funds that meet your specific needs. 

Moka portfolios are made up of four different investment funds to meet the various needs and goals of our members. In this case, the Moka Money Market Fund and Moka Fixed Income ETF Fund are staying the same while the Moka Equity ETF Fund and Moka SRI Fund will see two main changes that will affect the portfolios indicated above specifically:

1) An increased exposure to US stocks

In an effort to give you access to a broader range of sectors and industries, we’ve increased the funds’ exposure to US stocks by adding exchange-traded funds (ETFs) such as the S&P Total Market Index. By making this change, you could now have a bigger stake in companies like Apple, Alphabet, Microsoft and Tesla.

2) The addition of cryptocurrency

We’ve heard you loud and clear, and with the growing adoption of cryptocurrency as a legitimate investment asset, we decided now was the time to add digital currencies to our funds. The updated funds now include a 5% total allocation split evenly between exchange-traded funds (ETFs) that track Bitcoin and Ethereum. Given the small percentage allocated to cryptocurrency in the fund overall, any downturns are expected to have minimal negative impact on returns—baby steps!

We selected Bitcoin and Ethereum specifically because they’re among the most popular and stable cryptocurrencies available. Though they can be volatile; they have outperformed other asset classes in recent years, with Bitcoin hailed as the best performing asset of the last ten years. 

Our portfolio managers will continue to review these and other digital currencies to reassess if and how cryptocurrencies and other asset classes can be factored in when creating and refreshing funds for our members. 

What do these changes mean for you?

We’ve always strived to offer a variety of investment portfolios to our members that meet their personal needs and help them achieve their financial goals, so we’re thrilled to offer these updated portfolios.

For members with long term goals and who can tolerate some risk, we have shifted the composition of our highest-risk portfolio (now “Equity Growth”) to 95% equities and 5% cryptocurrency, split evenly between bitcoin and Ethereum.

If we look at the S&P 500’s historical performance as an example, a common benchmark in the investment industry, it’s had an average annual rate of return of 10% since its inception. To put that into perspective, if you were to invest $300 per month in the S&P 500, your investment could be worth just under $1.7 million after 40 years, if past results were to repeat themselves. Of course, there is no guarantee that will be the case. However, this example goes to show you the power of compounding returns!

So what do these changes mean for you? The short answer is: it all depends! 

The portfolio you’re invested in can’t be changed by you directly. If you remember way back to when you first signed up with Moka, we asked you a series of questions that were intended to get a better understanding of your financial goals, risk tolerance, time horizon and overall picture of you as an investor. Based on your answers, your portfolio manager selected an investment portfolio that best suited your financial goals and personal situation. If, for example, you had a short term investment time horizon, as defined by the date you set on your goal, or were less willing to take risk, your investments were likely placed in a less risky portfolio, like the Balanced Income or Cautious Income portfolios.

The good news is that you can update your goals by revisiting the questionnaire in the app at any time—if anything has changed or changes in the future with regards to your personal situation and financial goals, they will likely reflect a change in your portfolio. So if our new updates don’t immediately affect your portfolio, there’s always a chance they will in the future.

To learn more about your current portfolio and investments, click here on your mobile device to open your Investment Policy Statement. If you’d like to revisit your onboarding answers, click here. Any changes you make will be reviewed by a portfolio manager, and may trigger a change in your investment model.

If you have any questions or concerns about these changes, you can always reach out to our portfolio managers at operations@tactex.ca.

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Two strategies for efficient debt repayment

Debt repayment can feel like an unending, especially unique form of torture. You make your minimum payments every month, and yet the number you owe seems to shrink so, so slowly. Will it ever be paid off?

There are two common strategies that some experts say can help you pay down your debt faster. They’re called the snowball and avalanche strategies, and while they sound real cutesy, there’s some real tactical cleverness behind them.

Wanna learn what they are? We’ll tell ya!

Debt snowball and debt avalanche applications

The first thing to know is that these two strategies only work for folks with multiple debts. Maybe it’s a car loan and a credit card, or a handful of credit cards, or a line of credit and a personal loan. They both offer a strategy for tackling numerous debts more efficiently.

Both methods also require you to make payments in varying amounts. For this reason, they don’t work on debts like mortgages, which typically require a fixed payment on a fixed schedule.

Minimum payments suck

The second thing to know is that minimum payments are designed to keep you in debt longer.

What? Really? But don’t lenders want me to pay them back?

Yes, they do—but they want you to pay them back slowly, over a long period. This allows them to assess more interest charges and collect more from you over time. This is why debt can cost you more the longer you hold it.

So if you’re making only minimum payments on your debt, the first thing to do is consider if you could afford to accelerate your payment schedule. Even if you can only afford to up those payments by a few dollars, it could really help.

The interesting thing is both the snowball method and the avalanche method rely on minimum payments to work. In this scenario, the payments work more like maintenance fees while you work through your debt in stages. This is basically the only time making minimum payments on your debt might be reasonable.

What’s the debt snowball method?

The snowball method tackles the mental game of debt repayment.

In this strategy, you make your minimum payments on all of your debt except the smallest debt you hold. On this debt, you chuck any extra cash you have onto those payments.

If you hold three debts, one $1,000 debt, one  $700 debt, and one $100 debt, you’d make the minimum payments on the first two, but would make accelerated payments on the $100 debt.

The idea is that this can help enable you to pay off the smaller debts faster, which feels like a huge win. When you pay off your $100 debt, you start paying off your $700 debt at an accelerated rate. Lastly, you tackle your $1,000 debt in the same manner.

The “snowball” name comes from the momentum you build as you tick each debt off your list. According to a recent study from the Harvard Business Review, this repayment method is the best of the bunch, noting “focusing on paying down the account with the smallest balance tends to have the most powerful effect on people’s sense of progress – and therefore their motivation to continue paying down their debts.”

If you struggle with the mental commitment required to pay off your debt, this could be a great strategy for you.

The biggest criticism of this method is that by focusing on the debt with the smallest value, you may be letting other higher interest debts drag on, costing you more over time. You should review your interest rates to determine if this concern is relevant to you.

The avalanche method

Then there’s the snowball method’s big bro: the avalanche method.

Instead of tackling your smallest debt first, the avalanche method looks at the debt with the highest interest rate. This could be your smallest debt, your biggest debt, or the one smack in the middle; high interest rates can be what traps us in a debt cycle, so focusing on eliminating the debt with the highest interest rate is meant to reduce the cost of your debt over time.

Say we have the same debts: $1,000, $700, and $100. The first and third have the same interest rate, say 12%. But the $700 debt has a 24.99% interest rate.

A minimum payment on a $700 debt could be around $20 depending on your credit score. If you only made the minimum payment on that debt, it would take approximately 16 years and 4 months to pay it off, and you’d pay $1,098 in interest.

Yeah. You’d pay more in interest than the principal balance owing, and by the end, your debt would be old enough to hold a learner’s driver’s license in most parts of Canada.

By redirecting any extra funds to tackle that high interest debt first, you’re intending to shorten your repayment period and save money over time. If you have debt that has a high interest rate, the avalanche method could be perfect for you.

The challenge is that it takes real commitment and discipline to stay consistent in your debt payments, which is critical to the success of this strategy.

Which debt repayment strategy might be right for me?

Your circumstances are totally unique, so only you know which may be the best debt repayment strategy for you. But you can embrace a few helpful ideas that might make your journey to debt freedom a bit easier.

First, don’t take a loan from a company you don’t trust or with terms you don’t understand. Our friends at Mogo offer personal loans, for example—but their entire goal is to help borrowers pay their debt off ASAP. Check out their site to get a quick pre-approval that doesn’t impact your credit score and a transparent loan experience that will help you get debt-free faster, so you can get back to saving.1

You could also consider debt consolidation. By obtaining a loan at a lower interest rate and using that loan to repay your other higher interest debts, you could save money in interest charges over time. You can read more about that here.

You might also hold the type of debt that doesn’t—strictly speaking—need to be paid down right away, like a student loan or a mortgage. Read more about that here.

Ultimately, the best debt repayment strategy is one you can stick to. Make more than your minimum payments if you can, pick a plan, and stick to it. You can be debt free—just keep at it.

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How do world events affect my personal finances?

We often hear about “fluctuations” in the stock market. What exactly are these, and what causes them? At a time when geopolitical tensions are plunging us into uncertainty, it’s important to learn how the global markets can impact our personal finances. 

Let’s get into it.

Why do stock markets fluctuate?

Stock prices change daily, depending on supply and demand. The price of a stock, for example, is set in part by demand; therefore, the greater the number of buyers, the more the price is likely to rise.

Overall, markets are very sensitive. They can fluctuate due to internal factors within companies, but also depending on the current economic situation. If overall economic growth is strong and the political situation is stable, stock markets will tend to rise. If, on the other hand, the economic or political situation is unstable, the stock markets will tend to fall. We saw this particular situation occur during the Covid-19 crisis, when the S&P 500 collapsed during the March 2020 lockdown.

In general, several factors have an impact on markets:

The health of a given business sector

When a business sector is healthy, it benefits all companies in the industry, and vice versa. This is what’s happening with American tech companies (Facebook, Amazon, Microsoft, etc.), whose prices are reaching record highs. Conversely, when a sector of activity is struggling (for example, because it’s overtaken by a scandal), the stock prices of the companies in that sector will tend to fall.

The economic context

Economic conditions play a crucial role in stock market prices and in our daily lives. Basically, when the economy is doing well, prices tend to rise. This is called an “uptrend”. Conversely, in times of crisis or recession, the markets tend to fall.

Major world events

Major world events, even outside the stock market, can have a massive impact on prices. Examples of events might include a health crisis, the election of a new leader (on Donald Trump’s election day in 2016, global stock markets first crashed before recovering), a war, a climate event, geopolitical tensions, and so on. Any of these events will have a direct impact on our lives, as we are seeing right now with the rise in fuel and raw material prices which are partly due to the situation in Ukraine. Because of this conflict, the price of wheat has increased by 70% since the beginning of the year! Consequently, we’re seeing soaring prices in certain commodities such as bread.

Will I lose money when the stock market fluctuates (because of a global event, for example)?

Stock markets are volatile by nature, and volatility is the measure of the amplitudes of variations of a financial asset, both upwards and downwards.

So, should we be afraid of volatility?

It really all depends on your sensitivity to risk and your investment horizon. The investment (whatever it is) must be considered in the long term, knowing that time is the enemy of risk. Even if you lose money at a given point of time, these losses tend to be smoothed out eventually. Moreover, nothing is ever set in stone! Say you bought 3 shares at $10. Two weeks later, they might only be worth $8. You might think you have lost money, but in reality, as long as you have not sold your shares, you have neither gained nor lost. If you wait another 2 years, it’s quite possible that the value of each share will reach $15 dollars or more!

Moreover, if your money (or at least part of your money) is placed in savings accounts, cash equivalents and money market funds, and fixed income products – you can control against the risk of the more volatile stock markets. This is for good reason; these are investments with guaranteed capital, and there is therefore no risk of loss except for the loss due to inflation.

On the other hand, price fluctuations can directly influence the price of certain raw materials, or even energy. In this case, the entire population is affected, since these fluctuations are reflected in prices. Fortunately, this doesn’t mean that the situation won’t change in the short or medium term!

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Tax terms you need to know

Whether you’re filing taxes for the first time, or you’re new to Canada, or you’ve never filed on your own before, it’s frustrating to pause every few minutes to Google a specific term.

With any luck, we can take some of that pressure off here, with a crash course in some basic tax terminology.

Your tax dictionary

What is a T4?

A T4 is the slip that employers use to report the income of employees. Whether you are employed full time, part time, or on contract, your company will issue a T4 for you every year. Normally, you’ll receive this document by mail.

T4s, like most tax documents, come with many numbered “lines” that are used to code and record amounts of money. When doing your taxes, all you need to do is match the number affiliated with each line and fill in the corresponding amount. For example, line 23600 reports net income. Simply enter the amount on line 23600 on your T4 in the corresponding box labelled 23600 in your tax software or on your paper return.

Net and gross income

Depending on the type of your employment, you will report your income differently to the government. If you are an employee, you’ll find values on your T4 for your net and gross income.

The difference between net income and gross income is easy. Gross income is your total income, like the salary on your employment contract. From your gross income, many employers will preemptively deduct taxes “at the source,” including income tax, your mandatory contributions to the Canada Pension Plan or Employment Insurance. After those taxes are removed from your pay by your employer, your actual take home pay is considered your net income.

When you file your income taxes, you’ll report both of these numbers. Using these (and other factors), the government will decide if you’ve already paid enough in taxes (which would zero you out), if you have not paid enough (meaning you would owe money), or if you paid too much in tax throughout the year (which would get you a refund).

Conversely, because self-employed people don’t have a salary in which the company deducts tax at the source, self-employed folks have to manually deduct and save the equivalent amount all year long. Then, when tax time rolls around, they should have a lump sum ready to pay what is almost always an amount owing.

What is a tax refund?

Every year, it’s recommended you fill out a tax return to ensure you’ve paid enough tax to the government over the course of the year. If you haven’t, you are obligated to submit a return and pay the balance owing. The sometimes clunky mechanisms of the tax return system are in place to make sure all citizens and the government are “square,” or, they don’t owe each other anything.

Tax refunds occur annually for many Canadians. They occur when, over the course of the year, Canadians pay too much in taxes, which are often collected “at the source” by their employers.

Pro tip: don’t spend it all in one place! (Check out our 5 smartest things you can do with your tax return)

What are tax deductions or credits?

Tax deductions and tax credits, while they function differently, are our friends.

A credit is an amount that the government effectively forgives. If you are given a credit valued at $15, you may subtract $15 from your overall amount owing. Unfortunately, you can’t use tax credits to increase a potential refund; you can only use it to reduce the amount you owe.

Deductions, or write offs, work slightly differently and mostly apply to self employed people. Deductions allow Canadians to shelter part of their income from tax. If you earn $100, and have deductions valued at $10, you would only be taxed on $90.

Did you know! Contributing to an RRSP (Registered Retirement Savings Plan) account can shelter portions of your net annual income, which could come in handy during tax season! When it’s tax time, your taxable income = Net Annual Income – RRSP Contributions.

Let’s say you pay your income tax every payday and your net annual income is $50k. If you contribute $10k to your RRSP, you will only be taxed on $40k, which means you could potentially qualify for a tax refund.

(Reminder though, if you withdraw funds early—such as with the Home Buyer’s Plan—your repayment contributions don’t count as net new RRSP contributions. And, you still get taxed on your RRSP savings withdrawals when you retire.)

You may want to opt to use an accountant or a tax software to get tips on optimizing your return with credits and deductions because they can be a bit tricky.

What is a tax free allowance?

This amount changes every year—it rises, to keep up with inflation—and considers your net income, not your gross income.

For example, Canadians earning under $13,229 in the 2020 tax year will not owe income tax to the government.

This personal allowance is intended to let Canadians living at or below the poverty line have a break from paying income tax.

This allowance is part of the larger tax bracket, or progressive taxation, structure which undergirds Canada’s income tax system. The idea is that the more you earn, the more tax you pay.

For example, say all Canadians were taxed at 50%, meaning, 50% of their income went to the government (we chose 50% because it’s easier on our pea brains; this is not the basic tax rate in Canada). This would mean that a Canadian earning $5,000 would pay taxes of $2,500, leaving them only $2,500 to live off for an entire year. Conversely, a Canadian earning $5M per year would pay the government $2.5M, leaving them a roomy $2.5M to live off.

Using a progressive tax structure means that folks earning under $13,229 are not taxed, while folks earning $10M+ are taxed proportionally more.

It’s Almost Tax Time!

The submission deadline of April 30 is closer than you think! Make sure you start on your taxes early so that you’ve got enough time to do them well. Whether you’re using an accountant, a software, or roughing it all together yourself by hand, make sure you’re taking the time to do a good job, and to understand what you’re filing for. After all, noooo onnnneeee in the world wants to suffer through an audit.

Hang in there! You can do it!

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How to reach your financial goals

Whether you set a financial objective (say, saving $1000 dollars a year) or another goal like learning the piano or starting a small business, there are key strategies to get started and to stay motivated. Here are our five best pieces of advice.

1. Break your goal down into smaller, more attainable steps

Imagine your goal is to run a marathon. The prospect of running an entire marathon is pretty daunting, but if you break down your mission into smaller steps (for instance, running 5km without stopping, and then 10km, etc) it immediately seems much more achievable. 

When you work in realistic stages, it’s easier to keep up a good pace (see what we did there?) and stay motivated. It really boils down to identifying objectives and concrete actions that can be implemented in days, weeks, or months. This type of action plan should have specific and measurable “mini goals” that add up to your ultimate one. 

Taking one boxing class a week to build strength and skill is a more quantifiable and measurable plan compared to deciding to become a professional boxer. Breaking your ultimate goal into steps will not only help you reach the finish line, but the small wins along the way will help you stay motivated.

2. Keep the benefits of your goal in mind

Speaking of motivation, it can be easy to lose your drive if you lose sight of why you set the goal in the first place. If your aim is to put aside $100 dollars a week, but you don’t know why you’re doing it, you’ll have a hard time sticking to it.

If, however, you keep in mind that this $100 a week will help you pay for a luxurious vacation at the end of the year, you’ll be much more likely to follow your own plan. To make the one-year wait feel shorter, you can set a few milestones. For example, you can choose to save X amount after 3 months, X amount after 6 months, and so on. 

Side note: Moka can help you with financial planning! The app allows you to set specific goals and set money aside to achieve them. 

3. Hone your inner grit

Call it courage, endurance or resolve. Grit is a word that describes your strength of character and ability to persevere through difficult times and to meet challenges head on. Everyone has grit, and you can definitely cultivate this quality. 

This form of tenacity makes it possible to accomplish whatever task you set for yourself regardless of talent, skills, or circumstances. Popularized by American psychologist, Angela Duckworth, the concept of grit proves to be very useful when pursuing objectives. We strongly recommend reading her book, Grit: The Power of Passion and Perseverance.

4. Set a deadline

Depending on their nature, some goals don’t necessarily lend themselves well to deadlines. Setting deadlines, however, is a good strategy for creating incentives. If you recall our marathon example, the mission to run a marathon as a one-day challenge might mean setting yourself up for failure!

If you decide to set milestones over a set period of time to train for the marathon over two years, however, you’ve created a sound action plan that’s achievable. For long-term goals, such as learning to play a new instrument, break them down into specific steps and set deadlines for each of them.

5. Conduct regular check-ins

To help you stay on track, it’s important to regularly review your progress. These daily, weekly, or monthly check-ins are an excellent way to make sure you’re sticking to your action plan, and provide the opportunity to ensure your goal is aligned with your true needs and desires. Periodic check-ins also give you the chance to change your goal or even to set new ones! The main thing to keep in mind is to not feel guilty—you always have the right to change your mind.

Finally, consider writing down your objectives in a notebook (in order of importance, if necessary), and reread it regularly. You can also use the power of positive visualization throughout the day or before you sleep if that’s the best time. These methods can positively influence your unconscious; strengthening your motivation and helping you turn your dreams into reality.

Now go on, you’ve got this!

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Which investment strategy is better: Passive or active investing?

When creating an investment strategy, it’s important to know how passive investing or active investing could work for you.

Depending on your goals, time horizon, and comfort levels, you may come to favour one over the other. Here are a few important points that could help you figure out if either approach may be right for you.

What’s passive investing?

Passive investing has increased in popularity in recent years as app-based investment platforms have become more available. Passive investing is generally speaking a strategy defined by its minimal buying and selling of stocks or other instruments.

Instead, passive investing can be considered a ‘buy and hold’ strategy with a long term investment horizon. A common form of passive investing involves investing in diversified products like exchange traded funds (ETFs) that track major indices (like the S&P 500 or Nasdaq) over a longer period of time.

As the value of these diverse products increases or falls, so too would that of your holdings. Passive investing allows for a more hands off approach to wealth building, and historically can perform well over many years.

What’s active investing?

Active investing involves the active management of a given portfolio. You could be the one managing the portfolio, or it could be a financial advisor or portfolio manager that you hire to manage your investments on your behalf. It is the job of the active investment “manager” to try and maximize the value of the investments in the portfolio by using highly specialized knowledge and intuition to buy or sell.

Where passive investing is about taking a hands-off approach over a long period of time for generally more moderate returns, active investing is about taking a hands-on approach over shorter periods of time in the hopes of securing some big wins or gains in the value of your portfolio due to timely opportunities and price fluctuations.

Active investing typically involves higher fees than passive investing, in part because you are paying a fee to your investment manager, and because there may be a cost associated with executing trades.

Pros and cons of passive investing

Passive investing has been theorized as a good option for most casual investors because it will typically involve lower fees and less risk. However, passive investing does have a few disadvantages you should consider, too.

Pros:
  • Low fees. Because of the lower trading volume typically involved in passive investing, and because no dedicated portfolio manager is required, passive investments can cost much less than active investing. PWL pegs the management expense ratio (MER) of passive funds in Canada at just 0.28%. This can make a huge difference in your returns over time.
  • Tax efficiency. Because passive investments may grow more moderately (when compared with active investments), you may avoid larger capital gains taxes.
  • Lower comparative risk. Because passive investments often track well established indexes like the S&P 500, while the value of your investments will certainly fluctuate over time, their diversification tends to limit the volatility compared to individual stocks.
Cons:
  • Slower growth. Passive investing isn’t about trying to win big in the short term. Instead, this strategy could be conducive to saving for retirement, for example, where over the long term your regular contributions and returns could steadily accrue. However, this means its goal is not to see big gains in short periods of time.
  • Market underperformance. According to some, once costs are taken into account, passive investments that simply track a market index may underperform the market (because they track the market itself).

Passive investing may be a good strategy for you if you plan to invest over a long period of time, if you aren’t chasing big wins in short periods, and if you want to keep your costs low.

If passive investing sounds like it could be right for you, check out the Moka app.

Moka rounds up the spare change from every purchase you make and invests it weekly in diversified portfolios. Plus, you can give your savings an extra push using roundup multipliers, recurring deposits and one-time boosts, all of which will get automatically invested.

Getting signed up is easy—just answer a quick questionnaire and a portfolio manager will pick the perfect portfolio for you. 

Pros and cons of active investing

Active investing can get a bad rap, but it can also still play an important role in the investment strategies of many people.

Pros:
  • Attempts to outperform the stock market’s average returns. When your investments are actively managed, you or your portfolio manager can trade strategically to try and beat the market. This approach could earn you big returns that are basically unheard of in the world of passive investing. But typically, big returns also come with taking big risks.
  • Investment flexibility. Unlike passive investments, which may track an entire index, your actively managed portfolio can include any number and variety of financial products that might appeal to you. This way, you have more flexibility in terms of the types of investments you make, and your fund manager can look for new and exciting opportunities that might appeal to you.
Cons:
  • Higher fees. In Canada, the average fee for an actively managed fund is five times greater than that of a passive fund, clocking in at 1.59%. Over time, this can seriously damage your returns.

Let’s look at an example. Say you begin with an initial investment of $50,000 in mutual funds, and you contribute $10,000 annually for the next 30 years. Then, let’s say you’ve got a return of 7% and a fund expense ratio of 1.59%.

It’s just 1.59%. How bad can it be?

At the end of that 30 years, your investments would be worth $1,391,343.17 gross according to this source.

The fees? $396,747.84!

This makes your net gain, less the fees, only $994,595.33.

  • Long term underperformance. According to one study, “over the last five-, 10- and 15-year periods, 84%, 97% and 92%, respectively, of actively managed large-cap funds underperformed their benchmarks.”
  • Greater risk. Because your portfolio manager is actively trying to beat the market, they are also assuming more risk than passive investors.

These risks can be substantial, but this is in keeping with what we know of active investing as a whole: more risks, possible big rewards. In a short period of time, you could win big. But over a long period of time, it is statistically unlikely those big wins would be the norm.

If you want to get more involved with your wealth building journey but don’t want to hire a portfolio manager, you may want to consider taking the self-directed route. By using an app or a website, you can plot and make your own trades.

If this sounds right for you and you’ve done your own research, check out the MogoTrade waitlist. You get instant access to free live-streaming stock prices, can build a watchlist to track your favourite stocks, and can be among the first to trade commission-free when MogoTrade launches later this year. Visit the App or Play store to download MogoTrade today.

Which investment strategy is right for me?

Only you can decide on the right investment strategy for you. It depends on your goals, how comfortable you are with risk, and your time horizon.

There may even be room for both of these types of investments in your financial strategy. You can determine this by doing your own research and speaking with an accredited expert about your goals.

Theoretically speaking, these two strategies could balance each other well. Your passive investments could build up your retirement slowly over time; your actively managed investments could help you stay in sync with your wealth building journey and even earn you a couple extra bucks here and there.

After you’ve talked to a professional and decided on your path, you could consider Moka for your passive investments and MogoTrade for your active trading.

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What’s your investor profile?

What’s my investor profile?

Not your standard Hinge question, but figuring this out will help guide the who, what, where, when and how of your investment strategy. To get a better idea of your investor profile, you should consider the following: 

  • Age and personal situation: In theory, it’s easier to take risks when you’re young and (still) have few responsibilities. Do you have a steady income? Do you have children? What are your upcoming financial goals (buying a home, travelling, buying a car, etc.)? These are all questions that you should think about before investing.
  • Investment horizon: The longer your investment term, the more risks you can afford to take, since they will be smoothed out over time. Retirement will have a much longer investment horizon than going to Mexico next winter.
  • Risk appetite: Are you comfortable with taking risks? How do you feel about the idea of ​​financial loss? Or, would you rather have more security for your investments, even if your returns are potentially lower?
  • Financial knowledge: Do you understand the basics of finance and investing or are you a complete novice? If you’re a complete novice, don’t worry! We have some tools to help you get comfortable with the more common concepts and terms.

Take a few minutes to really answer the above questions. Then we can determine your investor profile: conservative, moderate or aggressive.

I’m rather… careful

You fit the Conservative profile if you value the security of your savings, are risk averse, or have short-term plans.

In this case, you’re better off putting your money in investments that are lower risk, such as savings accounts, bonds or GICs. The downside of investing in these assets is the low rate of return, which currently is even lower than inflation.

The Conservative profile is composed of 100% money market investments, which are short term debt obligations. The goal: to take a very little risk, while focusing on safety.

Note: The Conservative portfolio is recommended for investors who wish to access their savings in the short-term (1 year or less).

I’m rather… moderate

You have a balanced profile if you prefer a happy medium between security and performance. You’re not afraid of risk, but you don’t want to put all your savings on the line.

In this case, a diversified portfolio of  investments will  help to smooth out risk. For example, you can look at investing in a combination of stocks and bonds. Low-cost, well-diversified exchange-traded funds (ETFs), which are a collection of stocks or bonds, can be a good way to balance out your risk. . 

At Moka, our Moderate portfolio offers medium risk-taking and an average return, for a medium-term horizon (buying a car, financing a move, etc.).

Note: A medium-term horizon is generally between 2 and 5 years. 

I’m rather… adventurous

You fit the aggressive profile if you don’t fear the risks of loss and want to maximize your returns over the long-term.

For this type of profile, we recommend investing an important portion of your funds in equities To reduce the volatility of this investment, you can build your portfolio as follows: 70% to 80% stocks, and 20% to 30% bonds. Over the long-term, stocks are one of the most profitable asset classes. By focusing on these, you can maximize your expectation of earnings. But remember, there’s always a risk of loss when you’re investing, no matter what precautions you take.

At Moka, our Aggressive portfolio is made up of 80% equities and 20% bonds. It allows you to achieve higher profitability, while accepting the risk of potential losses.

Note: The Aggressive profile is for those with a long-term investment horizon  that is at least 5 years.

Now that you’ve gone through this exercise, you can better define your investment strategy according to your profile. Keep in mind that both your profile and strategy can change over time as your needs, projects, and financial and personal situation change.

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Inflation: What does it mean for you?

Remember when shops closed in March 2020? And then they just… didn’t reopen? For like, a long time? Something about a pandemic?

That closure and others like it were necessary to keep people safe. But those closures also had expansive economic impacts that Canada is now attempting to recover from. 

To put it in a nutshell: in order to encourage strong economic activity within Canada, the Bank of Canada decided to leave the cost of borrowing money low. This meant people would  borrow—and crucially, spend—more money, keeping currency circulating in our economy. 

But choices like this one can bring on inflation, which can be a good thing or a bad thing. This post looks at what inflation is, what makes it happen, and what it means for us. 

What is inflation?

Our friends at Investopedia explained it simply when they wrote “inflation is the decline of purchasing power of a given currency over time.” No faff with those guys. 

Often, inflation is illustrated by imagining a grocery basket full of eggs, bread, and… wine. (This “basket” has to include a variety of products and services to be a good measure of inflation, and is often represented by the Consumer Price Index, or CPI.) This basket we’ve got will cost us $10, say. 

When inflation increases at a nonoptimal rate (i.e., when there’s too much inflation), the cost of goods rises. We might return to the grocery store to purchase the exact same basket of goods only to find the cost is now $15. 

This means that our power to buy goods, per unit of currency, has diminished. This is how inflation “erodes” the real value of cash, and cash holdings or savings, over time. 

Economists have been expecting an uptick in inflation; its absence is in part what encouraged the Bank of Canada to take the actions it did and leaving interest rates low. 

But this choice, and a variety of other factors, means we could see a rise in the rate of inflation in the next several years.

What causes inflation?

There are three general types of inflation: demand-pull inflation, cost-push inflation, and built-in inflation. An optimum level of inflation is actually a good thing, because it encourages economic activity and employment. 

Demand-pull inflation happens when an economy is well stimulated, and consumer demand for products actually outpaces the production capacity for those goods. As a product becomes more scarce, its price can rise. A classic example of  supply and demand.

Cost-push inflation is the opposite. This happens when the cost of production rises, and that cost is passed along the supply chain to the consumer with the ultimate price increase of said product. 

Built-in inflation is related to what can be called the wage-price spiral. When consumers see the cost of living rise—even a little—they assume it will continue and demand higher wages to compensate. These higher wages are reflected in the cost of production, which, again, drives prices, and so on. 

In Canada, we’re seeing bits of all of these types of inflation. This article itself could be considered a product of built-in inflation. Here we are, telling you that based on our research, increased inflation could occur in the next few years; this could drive you to change your behaviour. 

Similarly, as the Bank of Canada keeps the cost of borrowing low, consumers will likely continue to spend, potentially driving up prices. And ongoing problems in the global supply chain—remember when the big boat got stuck?—could force higher production costs down the supply chain onto the shoulders of consumers. But only time will tell!

What does inflation mean for me?

Inflation can have several impacts on the average consumer, both positive and negative. If inflation falls, it means your purchasing power grows. If it rises, it means your purchasing power falls. 

Inflation is always a possibility, and there are a few things you should be aware of. There are a myriad of potential impacts of inflation, but here are three you might find more likely to impact you. 

Consumer purchasing power may fall

Your wine, coffee, eggs, bread, furniture, car, rent, and imports (for example) may cost more than they do today. Some experts say it’s possible to insulate your savings against inflation by not holding cash, but rather other instruments like equities. Holding specific financial products may help counteract the erosion caused by inflation, but every scenario is different. 

Talk to a financial  advisor or broker if you’re worried about your holdings. 

Borrowing costs may increase

To counteract inflation, the Bank of Canada may opt to raise interest rates. If you have a variable interest rate on a personal loan, student loan, line of credit, or mortgage, this may impact you, as the interest rate on your balance owing may increase. Talk to your bank or broker if this concerns you. 

Spending may increase

When interest rates climb and inflation gets out of control, people tend to withdraw from the market. Worried about the economy’s future, they feel they should save what they already have. 

But in the early stages of inflation, oddly, the opposite tends to happen. 

With continued inflation in the forecast, consumers often actually increase their spending. This makes sense: the value of the dollar will likely fall, but the real use-value of a pair of new running shoes with room to grow for little Tommy or a new coat for wee Jimothy that’ll fit until  he’s older stays the same. The idea is to buy now, when prices are lower, investing in goods that won’t themselves lose value. But this increase in spending can actually drive inflation, as in the demand-pull scenario. 

Inflation: we can’t avoid it. That’s why it’s important to have a good understanding of economic trends like these so we know how to best respond and adapt as our economy recovers in unpredictable ways. 

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Why you need a financial plan

We all have goals. Whether career, life or family, there’s usually something that each and every one of us envisions for ourselves. Owning our own home, being our own boss, or retiring somewhere warm—where there’s no snow, amirite?

When it comes to financial goals, achieving them is usually easier said than done. Enter the financial plan. A financial plan is your personal roadmap to financial security and, eventually, financial independence. Think about it like a business plan: In order to succeed in business projects, companies will lay out a business plan to help them bring their projects to fruition and ensure their business sustainability. Financial plans act the same way as a business plan in that they will guide you at every step of your financial life.

Here are some of the benefits of having a plan for your financial goals.

  • Build a better, more secure future for yourself

With a financial plan in place, you’ll have a better understanding of your spending habits compared to your income. This will help you track your expenses and increase your net savings every month. 

  • Have enough for an emergency

A good financial plan should include an emergency fund that will help you cover any unexpected expenses or support you in case of an income loss. It’s usually recommended to have 3-6 months of your living expenses in your emergency fund.

  • Prepare for retirement

Your financial plan should not only include your short-term goals like saving for a trip or a car, but also your long-term goals like saving for retirement. 

It may seem tedious and—let’s face it, no fun at all—to start saving for your retirement when you’re young. However, the sooner you start saving , the better prepared you’ll be for a comfortable retirement. Your older self will thank you.

The road to financial independence

Imagine waking up every morning and being able to choose how you want to spend your time: do you want to work today or do you want to take advantage of the beautiful sunny day to go for a walk or hike instead?

This is exactly what financial independence is all about: having the choice to work or not.

Being financially independent means having saved enough money to cover your essential and leisure expenses. You no longer need to go to the office to pay your bills.

Since everyone’s situation is different, we recommend you meet with a financial planner to figure out what’s needed for you to achieve financial independence.

Unfortunately, there’s no blueprint to reach this goal: your financial situation and essential and leisure expenses may be different from those of your neighbour.

An expert can also help you establish a savings and investment plan to achieve financial independence in the most efficient way.