General

Make Investing great again …. one day? Part 1

Posted By Financial Independence Hub | January 9, 2019

By Aman Raina, Investment Coach, Sage Investors

Special to the Financial Independence Hub

My motivation in starting my own practice to teach and engage people on investing revolved around financial literacy. I thought that if I could improve someone’s financial literacy, they will have a better chance at becoming a successful investor. I was always a big supporter of financial literacy programs, especially in schools. It made sense and I thought it was the right thing to do.

The reality is over the years I’ve learned and witnessed first-hand that while noble and done with good intentions, financial literacy programs just don’t work. A revolving door of programs, a lot of them government and industry sponsored have been rolled out over the years, starting out with enthusiasm and then just petering away in obscurity.

Here in Canada, we even have a Financial Literacy Commissioner , which acts and cheers Canadians into becoming more financially literate but to no avail. We even have a Financial Literacy Month late every year: So much effort, again all with good intentions, will be put into improving financial literacy but it just doesn’t seem to stick.

Millennials scared of investing

So queue the latest attempt at cracking the financial literacy daVinci Code. A 42-page report commissioned by the Ontario Securities Commission, prepared by a dream team of consultants and personal finance thought leaders. The report attempts to answer why people, specifically Millennials, are not investing and what financial institutions can do to get them to invest.

The report does a good job of capturing the pain points of why Millennials are not investing. They’re scared of investing. They feel overwhelmed by the process. They often freeze when trying to make a decision. They don’t know how to start and take that first step. I hear these thoughts very often from people I’ve worked with, and not just Millennials.

The report outlines some broad solutions and strategies that financial institutions could adopt to better engage the Millennial cohort. The problem is the solutions are drowned out in consulting jargon and don’t effectively address those pain points that people are consistently complaining about. Often I’ve seen many programs rolled out that don’t articulate a clear, consistent message that speaks to the pain points. Here’s what OSC report came up with:

Make Investing a Priority

This is an attempt to address the pain point of establishing the first step into investing. The report believes that the first natural step to expose people to financial concepts is in the classroom. Teach the concepts early on, maybe high school and it plants a seed that will carry them into adulthood.

It seems like common sense. Ontario high schools have just started rolling out a financial literacy curriculum. The problem is it’s been done and it doesn’t work. A study published in the journal Management Science by John Lynch, a consumer psychologist at the University of Colorado’s Leeds School, compiled the results of more than 200 studies of financial literacy programs, adjusting for subjects’ family background and personality traits that had been ignored in the previous research. The study found that studying financial literacy has a “negligible” impact on future behavior and that within 20 months almost everyone who has taken a financial literacy class has forgotten what they learned.

Students don’t retain the information. The reality is the information during that period in our lives goes through one ear and out the other. It’s just not a priority…at that time. The report cites an excellent example by one of the participants, who said “at 15 years I’m thinking only 3 months ahead and when I got to 22 years, I was thinking years ahead”. Teaching financial literacy in high schools intuitively makes sense, but at that age, we’re not thinking about the future. The future for me at that age was thinking about what I was doing after school on Friday with my friends. I’m not a psychologist but I think Teenagers aren’t wired for it. Their brain is still developing. It’s only when people experience adversity (i.e. living on their own, managing their paycheque for now and the future) that motivations for improving their financial knowledge crystalize.

Validation by Social Circle

The report suggests getting out to where Millennials are hanging out and engaging them about the importance of investing. The thinking is Millennials are more likely to follow what Continue Reading…

How small business owners can survive a security breach

Posted By Financial Independence Hub | January 8, 2019

By Gloria Martinez

Special to the Financial Independence Hub

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

Posted By Financial Independence Hub | January 7, 2019

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.

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.

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…

Safer investments for Retirees: How to retire with less stress

Posted By Pat McKeough | January 4, 2019

Retirement planning is becoming more difficult for Canadians because they’re living longer and need larger retirement nest eggs. This often manifests itself in “pre-retirement financial stress syndrome.” That’s the malady that strikes when it dawns on you that you may not have enough money saved to be able to earn the retirement income stream you were banking on.

To alleviate this worry, we recommend Successful Investors base their retirement planning on a sound financial plan. Here are the four key variables that your plan should address to ensure you have sufficient retirement income:

How much you expect to save prior to retirement;
The return you expect on your savings;
How much of that return you’ll have left after taxes;
How much retirement income you’ll need once you’ve left the workforce.

Note, though, that if you’re heading into retirement and are short of money, you should move your investing in the direction of safer, more conservative investments. That’s a far better option than taking one last gamble.

Moving into “too safe” investments for retirees can sharply cut your long-term returns

This applies as well to “risk-reducing strategies,” of which there are many. One of the most common is the urge to “go into cash” (also known as “taking money off the table”) when you foresee a market downturn. Like all risk-reducing strategies, this one can seemingly work from time to time, by getting you out of the market before a drop. But it’s even more effective at ensuring that you are out of the market when prices are shooting upward.

In the stock market, downturns do come along from time to time. But they are far less common than fears of downturns, which are virtually non-stop.

Safer investments for retirees: How to use RRSPs and RRIFs to add to your long-term investing success

RRSPs (Registered Retirement Savings Plans) are a great way for Successful Investors to cut their tax bills and maximize returns of their retirement investing.

RRSPs are a form of tax-deferred savings plan. RRSP contributions are tax deductible, and the investments grow tax-free. (Note that you can currently contribute up to 18% of your earned income from the previous year. March 1 is the last day you can contribute to an RRSP and deduct your contribution from your previous year’s income.)

When you later begin withdrawing the funds from your RRSP, they are taxed as ordinary income.

If you want to pay less tax on dividends, interest and capital gains while you’re still working, investing in an RRSP is the way to go.

Converting your RRSP to a RRIF is clearly one of the best of three alternatives at age 71. That’s because RRIFs offer more flexibility and tax savings than annuities (see the pros and cons of annuities at TSI Network) or a lump-sum withdrawal (which in most cases is a poor retirement investing option, since you’ll be taxed on the entire amount in that year as ordinary income).

Like an RRSP, a RRIF can hold a range of investments. You don’t need to sell your RRSP holdings when you convert—you just transfer them to your RRIF.

Safer investments for retirees should assume conservative yield estimates to account for unforeseen setbacks

As for the return you expect from investing for retirement, it’s best to aim low. If you invest in bonds, assume you will earn the current yield; don’t assume there will be increases in the value of the bonds.

Over long periods, the total return on a well-diversified portfolio of high-quality stocks runs to as much as 10%, or around 7.5% after inflation. Aim lower in your retirement planning — 5% a year, say— to allow for unforeseeable problems and setbacks.

Above all, it’s important to remember that while finances are important, the happiest retirees are those who stay busy. You can do that with travel, golf or sailing. But volunteering, or working part-time at something you enjoy, can work just as well.

One thing we encourage all Successful Investors to do is perform a detailed study of how you spend your money now. Then, you analyze your findings to see what personal expenses you can cut or eliminate. This too can have fringe benefits, especially if it helps you break unhealthy habits. You may be surprised at how much you’re spending and how much more you could be saving for retirement.

Do you believe in safer investments? What do you consider a type of safe investment?

What kind of investments do you have in place as part of your retirement plan?

Pat McKeough has been one of Canada’s most respected investment advisors for over three decades. He is the founder and senior editor of TSI Network and the founder of Successful Investor Wealth Management. He is also the author of several acclaimed investment books. This article was last published on Sept. 18, 2018 and is republished on the Hub with permission.

Stop giving Markets your attention

Posted By Robb Engen | January 3, 2019

When I got an activity tracker several years ago I was horrified to learn just how sedentary my lifestyle had become. I’d drive to work, park my butt at a desk for eight hours, drive home, park my butt on the couch for a few more hours, and go to bed. It was mindless laziness.

I fit right in with the average North American, who walks an average of 3,000 to 4,000 steps per day.

Steps to improve my steps

My activity tracker suggested a goal of 10,000 steps per day. I was motivated by the step counter and helpful nudges to get myself moving. I started parking in a free lot about 1 kilometre away from work, adding an extra 3,000 steps to my day (and saving $50 per month in parking fees!).

My new walking routine got me up to an average of 7,000 steps per day, but still not close to my goal. Then, following my wife’s lead, I got into running three to four times per week. The extra activity helped me reach my goal – not every day, but on average throughout the week. Funny enough, I still find motivation from my activity tracker as it nudges me to reach and surpass my daily move goals.

The hyper-attention and daily nudges helped me get my butt in gear and become a healthier person.

Curbing my Screen Time

Similarly, Apple sends iPhone users a new weekly report called Screen Time that shows how much time you spend on your phone. You’ll see which apps you use most often, how many times per day you pick up your phone, how many notifications you receive per day and from which application.

The report can be an eye opener if you’re into mindless scrolling through social networking sites like Facebook, Twitter, and Instagram. Twitter is the biggest attention sucker for me. Hey, it’s where I get my news!

I also get a lot of notifications and can conclude from the report that I receive about 30-40 emails per day from work. Not cool. Because of those notifications I tend to pick up my phone 65-70 times per day to either check my email, respond to a text, or check Twitter.

The week the Screen Time report first came out I spent six hours per day on my phone. I’ve got that down to less than four hours per day and try to design rules around curbing my screen time. That means turning off unnecessary notifications and keeping my phone in another room when I go to bed.

Again, these nudges had a positive effect on drawing my attention to a negative behaviour and making a conscious effort to curb it.

Negative Stock Market Attention

Back when I was a stock-picker I obsessively checked my portfolio, and read every market headline. I scoured the internet for news about my individual stock holdings and searched for analyst opinions (only the ones that confirmed my own opinion, of course).

But just like in the previous two examples, all this attention and information made me want to act. My oil stocks were getting killed and I wanted to get out. Sobeys made a mess of its Safeway acquisition and I wanted to get out. The general market would fall by 5-10 per cent and I felt like I needed to do something – like contribute more money than I had planned, or hold off on adding new money until things “settled down.”

Nudges worked against me. I’d get email alerts when Fortis or Great West Life missed their earnings targets. What should I do with this information?

The Globe and Mail app would send helpful push notifications like, “markets plunge on European/China/Russia fears,” or,“Dow posts worst day ever.” A smart investor is supposed to act on this, right? Shift their portfolio to safer assets? Buy gold?!?

Don’t just do something, stand there!

I switched to indexing four years ago with a simple two-ETF portfolio of global and domestic stocks. Now that I own thousands of companies I no longer pay attention to the fortunes of one or two. I find myself paying less attention to market headlines in general.

I make my monthly contributions automatic and only check my portfolio when the cash balance is large enough to make a trade. I figured instead of tinkering with my portfolio daily and reacting to news I’d be better off taking a two-decade nap and letting compounding do its thing.

Your long-term investing plan has no time for daily market noise. Yes, we may be entering a bear market. Or it’s just a run-of-the-mill market correction. Nobody knows for sure.

We do know that yesterday [late December] the Dow and S&P 500 had historic gains. If you happened to act on your fears and exit the market, thinking it was on its way to a 40-50 per cent meltdown, you missed out on that important rally. In fact, many of the largest one-day gains occur during down markets.

Final thoughts

Technology can help bring attention to a negative behaviour and turn it into a positive outcome. But those nudges and alerts can also work against you.

When it comes to investing often the best course of action is to do nothing and stick to your plan. Daily gyrations smooth out over a period of several months, and over several years the trajectory of the stock market tends to point up and to the right.

Many so-called experts question the value of robo-advisors during a downturn such as this, saying that investors would be better off with a human advisor. But from what I’ve heard during tumultuous times, the robos send helpful nudges via text and email explaining what is happening and why fluctuations in the market are part of a normal investing experience.

For investors that can be calming reassurance in the face of negative headlines screaming for your attention.

In addition to running the Boomer & Echo website, Robb Engen is a fee-only financial planner. This article originally ran on on Dec. 27, 2018 and is republished here with his permission.