All posts by Financial Independence Hub

How small business owners can survive a security breach

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By Gloria Martinez

Special to the Financial Independence Hub

Photo by Markus Spiske on Unsplash

There are myriad reasons why a malevolent actor would want to breach your small business’ data and info and/or attempt to defraud your company. Money (holding business info or operations ransom) is a big one, but your business also holds plenty of useful, sensitive data on customers, clients, business partners, trade secrets, and finances. Whatever the reason, data breaches are becoming the norm — not the exception — for small businesses around the world, and the cost can be substantial. Here’s what to do if you’ve been hit.

Plug the leak and and figure out what happened

If you are a network security pro or have your own in-house team that can perform this task, that’s great. However, the majority of small business owners feel lost and adrift following a security breach. The smart first step is to hire digital forensic specialists. These experts can do most of the technical work for you, from plugging up the initial breach point, tracking down the responsible parties (which is key for any sort of legal action), and finally doing the necessary legwork to shore up your defenses (so it won’t happen again).

This is also the time to contact your service providers. It’s highly unlikely that your breach exists in a vacuum. We’re talking your point-of-sale software company, internet provider, credit card processor, and accounting firm, so it’s wise to take the appropriate actions.

Boost security and consider Legal Representation

Your next step is to do what you can on your end to improve your data security. Employ the obvious, FTC-recommended actions like changing company passwords, security codes, and physical locks (yes, data breaches can occur when unauthorized people have actual, physical access to your workspace). Then, as the FTC suggests, “you may consider hiring outside legal counsel with privacy and data security expertise. They can advise you on federal and state laws that may be implicated by a breach.” Legal representation is vital for two major avenues — either taking action against those responsible or defending your business from liability (compromised personal data can put you in a serious legal pickle).

Make changes to prevent future breaches

A few solid ways to protect your small business from future security issues include separating personal and business accounts, beefing up your security and data permissions, and retraining employees about proper security protocols. The sad fact is that many security breaches are due to employees — whether malicious or unintentional. That’s why it’s absolutely critical that you take the time to carefully screen your hires to make sure they are reliable and trustworthy. This means holding quality job interviews where you ask the right questions to get an accurate sense of the candidates you’re vetting.

Notify those affected

Legal considerations aside (notification of a data breach may be forced based on state laws), being honest and upfront with your customers, clients, and business partners is always a good idea. It builds trust, for one. It also allows them to shore up things on their end, as security breaches are rarely just limited to the primary target.

Small businesses are generally easy targets for malicious actors for a variety of reasons. For one, they simply do not believe they are big enough to be hacked or breached. They also don’t have the time, money, or resources to devote to major cybersecurity. Knowing that you are vulnerable is half the battle, and the other half is staying calm but decisive when something does happen. Take these steps so you can recover and move on from a security breach.

Gloria Martinez loves sharing her business expertise and hopes to inspire other women to start their own businesses. Her brainchild is Womenled.org. Gloria’s vision is to help all women advance in the workplace and celebrate their achievements.

The Investing Year in Review: 2018 was not Financial Armageddon

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By Dale Roberts

Special to the Financial Independence Hub

cramerpic
Mad Money with Jim Cramer – Wikipedia

Everybody relax. Chill out, or you can Chillax. Is that a word that is still in use?

For all of the noise and hysteria, 2018 was not all that bad a year for Canadian and U.S. investors. But if you listened to the financial press and were unfortunate enough to watch too much BNN or perhaps the more frenetic and desperate U.S’ investment shows that look more like a Football halftime show, you might think the world had ended for  Investorkind.

Seriously, turn this stuff OFF. Unless you’re able to watch and laugh, then carry on. As I like to write, all of this financial and investment fluffery is for entertainment purposes only. 

2018 was not that bad: all normal and expected market behaviour

When I looked at my accounts at the end of 2018, I saw that my personal RSP account was down just slightly at about 3%. My wife’s personal RSP and spousal RSP accounts were both positive to the tune of about 2-3%.

Hardly Armageddon.

Here’s one of my wife’s accounts. It’s a one-year chart so it shows the slow start to 2019. The purple line is my wife’s account (that I manage), the dotted blue line is the Canadian stock market – the TSX composite.

joan's account

That does not look like panic time. More like snooze time with not much going on.

The account uses the basic building blocks also largely followed by the Canadian Robo Advisors,and mostly by those who create a well-balanced ETF portfolio. You can find some basic models on my ETF Model Portfolio page.

AssetAllocationSnip

For my wife’s accounts, and for all of our accounts, I use Canadian stocks, U.S. stocks and Canadian bonds. I mostly do not use International stocks. Core indexers might say that is a ‘mistake’, you might be best served to stick to the script. I will certainly be back with articles on International Diversification for Canadian investors.

Not including international stocks added a slight boost to our portfolios in 2018.

International Developed Markets (iShares XEF) was down 6.6%.

US Total Markets (iShares XUU) delivered a positive 2.9%in 2018 thanks to the strong US Dollar. Canadian investors see that currency boost.

The Canadian Market (iShares XIU) was down 7.7%.

The Canadian Bond Market (iShares XBB) was up 1.3%.

Put it all together in a Balanced Portfolio 

We can see that two of the assets were in positive territory, two of the assets were in negative territory. Typically your asset mix will largely determine your returns. A good benchmark is the new Vanguard all-in, one-ticket portfolio solutions. For more on those wonderful funds please have a read of Jonathan Chevreau’s  Continue Reading…

Here’s what home buyers can expect in 2019

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By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

2018 has certainly been a tumultuous year for Canadian real estate: tougher mortgage rules, rising interest rates, and sky-high rent prices have squeezed buyers and tenants in markets across the country. Will next year be one of stabilization sales and prices, or will 2019 usher in more uncertainty for those aspiring to be homeowners?

Let’s take a look at four scenarios that are likely to materialize in the new year.

1.) Count on slower sales

New build and resale activity for condos and houses for salehave slowed across Canada this year, and have impacted various markets for a variety of reasons; in Ontario, buyers continue to grapple with the effects of the Fair Housing Plan, a package of policies introduced last March, while Vancouver is dealing with price fatigue and new taxes that target investor and foreign buyers. Smaller western markets, such as Calgary, are slogging through a supply imbalance, which puts downward pressure on prices.

However, all housing markets have been reeling from the effects of the federal mortgage stress test, which was put into effect on January 1 (a year ago). Combined with rising interest rates, it has taken the steam out of real estate activity and reduced buyers’ purchasing power as they must prove they can qualify for a mortgage roughly 2% higher than the rate they’ll actually get from their bank.

According to recent analysis from the Canadian Real Estate Association, it won’t be a cheerier picture in 2019: sales are actually expected to hit a nine-year low, softening 0.5% from 2018, which has already absorbed an 11.2% decline at 548,200 homes sold.

“In 2019, home sales activity and prices are expected to be held in check by recent policy changes from different levels of government, in addition to additional interest rate increases,” CREA states in its November release.

2.) A temporary hold on rate hikes

Good news for borrowers, but not so much for the economy – despite strong expectation that there would be multiple Bank of Canada (BoC) rate hikes this year and next, recent economic events have effectively derailed the central bank’s upward tear, meaning variable-rate mortgage holders and new applicants will get a temporary reprieve on their cost of borrowing.

The BoC, which controls inflation and the cost of lender borrowing by increasing or decreasing its trend-setting Overnight Lending Rate, opted to leave it untouched in its December announcement, despite hiking in October to 1.75%, as a new U.S. – China trade skirmish and domestic oil price plunge have raised doubts on economic stability. 

It has been said throughout the year, in response to early strong inflation growth, that the BoC intended to eventually raise rates to a “neutral” range, between 2.5 – 3.5% by 2019. It is unclear at this time if it still plans to do so over the coming year.

3.) Rents to keep on rising

Sorry, tenants – there isn’t any sign of relief in store for you. 

The price of rent, especially in Canada’s largest urban centres, has been a central theme in 2018; rental MLS listings in Torontofor one-bedroom units rose 9.5% this year to an average of $2,163, according to the Toronto Real Estate Board. A CMHC rental report also reveals that, across the nation, rents have increased 3.5%, with the largest hikes in Vancouver (+55%), and Toronto (+5.2%). Rental vacancies also shrunk in most major markets; Toronto and Vancouver both have roughly 1% of rental stock available, while the Quebec market saw its rate plunge from 3.4% to 2.3% in the span of a year.

And they’re expected to keep on rising by an average of 6% next year, according to the National Rent Report released by Bullpen Research and Consulting, partnered with Rentals.ca, as employment, migration, and desirability factors continue to fuel demand for units.

4.) How can buyers prepare for 2019?

For those sitting on the fence regarding their home purchase, the time to act is now; connect with a mortgage professional to lock in a pre-approved rate before the BoC resumes its hiking mandate. Be prepared to encounter fewer listings in the new year, as many sellers may not feel the climate is the right one to list their home. However, with the pace of price growth expected to soften in many markets, it could be an advantageous time to get onto the property ladder at a lower price point than before. It’s a great idea to work closely with an agent when the market is slightly down, to determine if it’s the best time for you to make a move.

Penelope Graham is the Managing Editor of Zoocasa.com, a leading real estate resource that uses full brokerage service and online tools to empower Canadians to buy or sell their home faster, easier, and more successfully.

The Benefits of Travel

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Billy and Akaisha take in the view from their hostel in Zacatecas, Mexico

By Akaisha Kaderli

Special to the Financial Independence Hub

We understand that not everyone likes to travel. No doubt it can be challenging, but there are significant benefits if you choose to enliven your routine with a little excursion.

Traveling makes you smarter

From the beginning of choosing a location, packing your suitcases and figuring out the logistics of who will water your plants or sit with your pet, traveling takes you out of your routine. Anything new and different like this that engages your brain causes new neurological pathways to grow.

Learning a new language, taking a cooking or painting class while on your trip and meeting new people all place you in unique situations, and your brain strengthens.

Traveling is healthy for you!

Traveling makes you strong

For some people, all these new patterns outside the everyday routine can be perceived as a hassle. Yes, and that’s good! We learn flexibility, creativity and self-reliance. Those are great attributes to have and they are useful to daily living.

Flexibility of mind, finding new solutions to new challenges and our sense of who we are and how we cope all get stronger.

Traveling helps you become an interesting story teller

When things don’t go according to plan, those seemingly challenging circumstances make for the best stories!

If everything goes perfectly on your trip or vacation, and people ask “How did you enjoy yourselves? How was your trip?” then all you can say is “Great!” Continue Reading…

U.S. Growth stocks: You’d better be Seabiscuit

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This is Part 2 of a two-part blog series on the prospects for Growth and Value Stocks.

Read Part 1 Growth Stocks: Where’s the Beef?

By Jeff Weniger, CFA, WisdomTree Investments

Special to the Financial Independence Hub

When your starting point is a 1.4% dividend yield,1as is the case with the S&P 500 Growth Index, the group of stocks that make up the basket need to have long-term dividend growth that performs like Seabiscuit, the super horse. No tripping out of the gate or getting bumped in the stretch.

Latching on to the concepts in my white paper, Dividend Growth’s Drivers: Picking Apart Quality, we present figure 1, which shows the interrelationship between the percentage of earnings that are retained (as opposed to paid out as dividends) and the return on equity (ROE), which is net income as a percentage of shareholders’ equity.

This relationship is thedriver of dividend growth, and as the years go on, concepts like figure 1 have become core tenets of second-decade WisdomTree.

Figure 1: The Critical Equation

The Critical Equation

Figure 2 uses the critical equation to calculate long-term dividend growth at prevailing profitability levels.

As it stands, the S&P 500 Growth Index’s 23.2% ROE implies long-term dividend growth of 16.8%. That could happen, yes. Anything canhappen. But here’s a better idea: expect downward revisions instead.

Figure 2: Implied Dividend Growth Estimate 

Implied Dividend Growth Estimate

After all, look at the historic record in figure 3. There isn’t a single five-year period that had growth stocks’ earnings running forward at a 16.8% clip, not even in the roaring 1990s. In contrast, value stocks’ implied dividend growth is on planet Earth. 

Figure 3: Dividend Growth Rate, 5-Year Periods, 1995–Present 

Dividend Growth Rate 5Year Periods 1995Present

Does anything jump out in figure 3? Look at the dividend growth experience of growth and value from 2010 to 2015 and from 2015 to the present.

Those growth stocks start to look less like Seabiscuit and more like also-rans if recent years are any indication. Granted, value indexes are dominated by banks, and the period from 2010 to 2018 was characterized by the benefit of their reinstated dividends. Nevertheless, if growth stocks were only able to increase their dividends at a high single-digit rate during this period of irrepressible economic expansion, what happens if recession hits? Let someone else pay 22 times earnings to find out. 

Slow and Boring? Better than Growing Out of 1%

The S&P 500 Value Index has a dividend yield that is about double that of the S&P 500 Growth Index (2.7% vs. 1.4%). This kind of gap makes it nearly impossible for the latter index to ever grow out of its valuation.

If U.S. growth could not differentiate its … ahem … dividend growth relative to value from 2010 to 2018, what makes anyone think the next several years will be different? For growth stock skeptics, the WisdomTree Fund that hits value is the WisdomTree U.S. High Dividend Index ETF (HID/HID.B). 

It retains 38% of its earnings, pays out the other 62% as dividends and has an ROE of 13.5%. That ROE is satisfactory enough. Using the “critical equation,” it has long-term implied dividend growth of 5.1%, which is less than the levels of the S&P 500 Growth Index. But when the starting point is a 1.4% forward dividend yield, companies that populate indexes like the S&P 500 Growth Index would have to run up their dividends at a 15% or 20% annual pace for a long time before the math even thinks about shifting in their favour.2

For investors who do not want to commit to value because they keep getting burned, a fund like the WisdomTree U.S. Quality Dividend Growth Index ETF (DGR/DGR.B), which tracks the WisdomTree U.S. Quality Dividend Growth Index CAD, seeks to target companies that rank well on our ROE x earnings retention framework. 

Critically, its dividend weighting methodology also checks valuations at the door. That gives it a starting dividend yield of 2.7%, about 130 bps more than the S&P 500 Growth Index. It also has an explicit screen for ROE and return on assets (ROA). Its 15.8x forward earnings multiple is 3.3 multiple points below the S&P 500 Growth Index.

Over the next 5 or 10 years, we’ll take DGR.B or HID.B over S&P 500 Growth Index. This is where the rubber meets the road, when the cap-weighted U.S. large-cap growth indexes start to be priced like they’re Seabiscuit, when in reality they’re an underlay.

1Sources: WisdomTree, Bloomberg, as of 11/15/18.

2Sources: WisdomTree, Bloomberg. Unless otherwise stated, all data in this blog as of 11/15/18.    

Jeff Weniger, CFA serves as Asset Allocation Strategist at WisdomTree. Jeff has a background in fundamental, economic and behavioral analysis for strategic and tactical asset allocation. Prior to joining WisdomTree, he was Director, Senior Strategist with BMO from 2006 to 2017, serving on the Asset Allocation Committee and co-managing the firm’s ETF model portfolios. Jeff has a B.S. in Finance from the University of Florida and an MBA from Notre Dame. He is a CFA charter holder and an active member of the CFA Society of Chicago and the CFA Institute since 2006. He has appeared in various financial publications such as Barron’s and the Wall Street Journal and makes regular appearances on Canada’s Business News Network (BNN) and Wharton Business Radio.