Inflation

Inflation

Fraudsters more active than ever but less than half of us take protective measures

Image www.antifraudcentre-centreantifraude.ca/

Yes, it’s March, also dubbed Fraud Prevention Month. To mark it, a TD survey has been released that finds fraudsters are getting more persistent as the cost of living keeps soaring.

While 62% of Canadians agree they are being targeted now more than ever, a whopping 46% haven’t taken any measures to educate themselves or take protective measures in the past year.

Among the findings:

  • 47% believe the rising cost of living and other financial hardships will expose them to more scams
  • 78% don’t have much confidence in their ability to identify fraud or scams
  • 54% feel stressed or anxious about financial fraud
  • 31% are too embarrassed to tell anyone if they were the victim of a fraud or scam
  • 66% of Gen Z and 44% of Millennials admit they wouldn’t tell someone if they were swindled

The full press release is here.

“As Canadians report being targeted by a record number of financial fraud attempts, many can benefit from using the tools and resources available to protect themselves and their loved ones,” says Mohamed Manji, Vice President of Canadian Fraud Management at TD in the release, “It’s very important to exercise caution, especially at a time when fraudsters may take advantage of the economic challenges many Canadians are currently facing. In addition to the robust security measures TD has in place for its customers, the best defence against financial fraud is being aware and knowing how to spot it.”

Both TD and the Canadian Anti-Fraud Centre offer a comprehensive library of articles discussing the latest trends in scams and measures Canadians can take to enhance their awareness and avoid falling victim to fraudsters.

Targeting mostly via e-mail or telephone 

The survey found 72% of Canadians reported being targeted by email/text message fraud, up 14 percentage points from last year, while 66% were targeted over the phone. Oddly, the poll finds Fraudsters seem to be pivoting away from social media, with only 26% targeted this way, 10 percentage points less than 2022.

Those polled were most concerned about identity theft (52%), title fraud (23%) and fake emergencies (20%).

Factors likely to increase vulnerability to fraud include age (43%),  loneliness or isolation (35%), moving recently to Canada (34%) and financial hardship or job loss (32%).

“We’re seeing more fraudsters preying on customers through the ‘grandparent’ or ’emergency’ scam,” adds Manji. “This cruel crime is often successful because it exploits someone’s desire to care for their loved ones. If you get a call from somebody claiming to be a family member or friend in immediate need of funds, hang up the phone and call them back using a number you have for them.”

TD says that with 31% saying they’d be too embarrassed to tell anyone if they were a fraud or scam victim, it’s clear there’s some stigma in talking about this type of crime. If someone believes they’ve fallen victim to a scam, they should immediately report it to their financial institution, local police department, credit bureaus (Equifax and TransUnion) and the Canadian Anti-Fraud Centre.

How can Canadians protect themselves?

TD recommends the following tips and advice: Continue Reading…

Best stocks for new investors seeking profits share these qualities

Image courtesy TSInetwork.ca

Finding top stocks for new investors is easier when you know what to look for. Discover the types of stocks to invest in and some investments to avoid.

We caution investors to maintain a healthy sense of skepticism at all times. It’s especially crucial for investment newcomers to observe this rule.

Here are some recommendations on the types of stocks for new investors to focus on: and ones to avoid.

Focus on investment quality  

The best investment plans or systems use a variation of the value investing approach. That is, they revolve around choosing high-quality investments and diversifying your holdings.

Safer investing also means taking a careful and methodical approach to investing that does not jeopardize your savings or your investment goals. There will always be some inherent risk when investing, so making safer investing decisions lets you minimize that risk.

The safest way in our view for Successful Investors to invest money is to place a lot of importance on investment quality.

We do our own stock market research for our newsletters and investment services, and we apply it from a portfolio manager’s perspective. That’s why we advise sticking to mostly well-established companies; they tend to hold on to more value when things go wrong and recover faster.

Zero in on dividend-paying investments

One tip we share often is to invest in companies that have been paying a dividend for 5 or more years. Dividends are typically cash payouts that serve as a way for companies to share the wealth they’ve accumulated. These payouts are drawn from earnings and cash flow and are paid to the shareholders of the company. Typically, these dividends are paid quarterly, although they may be paid annually or even monthly. Canadian citizens who own shares in Canadian stocks that pay dividends will also benefit from a tax break.

Building a diversified portfolio of top stocks for new investors

Always maintain a diversified stock portfolio: and avoid the temptation of trying to pick hot stocks or sectors.

Different investors may be more comfortable holding a larger or smaller number of investments in their portfolios. Here are some tips on diversifying your stock portfolio:

When it comes to a diversified stock portfolio, stocks in the Resources, and Manufacturing & Industry sectors in general expose you to above-average share price volatility.

  • Stocks in the Utilities and Canadian Finance sectors entail below-average volatility.
  • Consumer stocks fall in the middle, between volatile Resources and Manufacturing companies, and more stable Canadian Finance and Utilities companies.

Most investors should have investments in most, if not all, of these five sectors. The proper proportions for you depend on your temperament and circumstances.

Investments that should be avoided: Cryptocurrencies & IPOs

I still can’t think of anything that would make me optimistic on bitcoin or any cryptocurrency, even after the deep slump the whole sector has gone through recently. The best thing I can say about bitcoin is that it will probably remain volatile, rather than vaporizing like the worst crypto performers. Continue Reading…

Is short-termism hurting your investment?

Special to Financial Independence Hub

Are you a patient investor? Or are you looking at your portfolio multiple times a day, having the itch to sell everything? Despite having done DIY investing for over a decade and making my shares of investment mistakes in the past, I am still learning about investing on a daily basis.

One key lesson I’ve learned is short-termism will hurt your investment. As investors, we need to have patience and a long term view.

What is short-termism?

Per Wikipedia, short-termism is giving priority to immediate profit, quickly executed projects and short-term results, over long term results and far-seeing action.

On the surface, it seems that short-termism is associated with investment strategies like day trading, momentum trading, short selling, and options trading. However, I believe many investors that invest in individual dividend stocks and passive index ETFs often fall into the short-termism trap as well.

How so?

On one hand, it’s about short-term profit taking. On the other hand, it’s about paying too much attention to the short-term share price movement and feeling the need to tweak your investment portfolio. Some common portfolio management questions I’ve seen on Facebook and Twitter are:

“Should I take profits when the stock goes up and re-invest the money later? Give me a reason why I shouldn’t sell and should just hold?”

“I purchased Royal Bank at $110. It’s frustrating seeing the share price going up to $150 and then dropping back down to $125. Should I sell when the stock is at a 52-week high and buy back when the stock price dips?”

“I have a small paper loss on Brookfield Asset Management, I don’t think the company is doing well, should I sell and invest the money elsewhere?”

“I bought some Apple shares recently. Apple had a terrible quarter and I’m down. I’m convinced that Apple is going to crash and burn. Should I sell and run now?”

And the questions go on and on…

Why do we fall into the short-termism trap?

There are many reasons why we fall into the short-termism trap. Some of the common reasons I believe are:

  • The need to be correct – we as investors want to see our investments increase in value once we make the purchase. When this happens, it means we’re right and made the correct investment decision. If the share price goes down, that must mean we are wrong and are terrible at investing. The need to be correct becomes a burning desire. Nobody wants to be told that they are wrong and be the laughingstock.
  • The need to be validated – we all have the need to be validated by others but for some reason, this need is even stronger when it comes to investing. We want others to validate that we made the right investment decision so we can feel good inside. The desire to be validated can be like drugs, once someone validates you, you begin to want even more. The need to be validated is a very slippery slope…
  • Looking for gains right away – It’s exciting to see investment gains. It is even more exuberating to see significant gains in a few days. It’s like going to the casino and winning 1000 times on your bet or winning the lottery. Why wait for five years to see multi-bagger gains when you can get the same type of gains in a week? Long-term investing is for losers!
  • Ego – for some reason we all believe we are better investors than who we truly are. Believe me, I fall into this trap from time to time. Deep inside, we believe that we can predict how companies will do in the future accurately by looking at past performance and public information.

How to escape the short-termism trap?

So how do we escape the short-termism trap? I think the best method is to understand your short-term, medium-term, and long-term goals. Are you investing for the short-term or are you investing for the long-term? Knowing this will dictate what kind of investments you should buy. Continue Reading…

Value Investing: Looking beneath the surface

Image from Outcome/QuoteInspector.com.

By Noah Solomon

Special to Financial Independence Hub

It goes without saying that 2022 was a less than stellar year for equity investors. The MSCI All Country World Index of stocks fell 18.4%. There was virtually nowhere to hide, with equities in nearly every country and region suffering significant losses. Canadian stocks were somewhat of a standout, with the TSX Composite Index falling only 5.8% for the year.

Looking below the surface, there was an interesting development underlying these broader market movements, with value stocks far outpacing their growth counterparts. Globally, value stocks suffered a loss of 7.5% as compared to a decline of 28.6% in growth stocks. This substantial outperformance was pervasive across countries and regions, including the U.S., Europe, Asia, and emerging markets. In the U.S., 2022’s outperformance of value stocks was the highest since the collapse of the tech bubble in 2000.

These historically outsized numbers have left investors wondering whether value’s outperformance has any legs left and/or whether they should now be tilting their portfolios in favor of a relative rebound in growth stocks. As the following missive demonstrates, value stocks are far more likely than not to continue outperforming.

Context is everything: Value is the “Dog” that finally has its Day

From a contextual perspective, 2022 followed an unprecedented period of value stock underperformance.

U.S Value vs. U.S. Growth Stocks – Rolling 3 Year Returns: 1982-2022

 

Although there have been (and will be) times when value stocks underperform their growth counterparts, the sheer scale of value’s underperformance in the several years preceding 2022 is almost without precedent in modern history. The extent of value vs. growth underperformance is matched only by that which occurred during growth stocks’ heyday in the internet bubble of the late 1990s.

Shades of Tech Bubble Insanity

The relative performance of growth vs. value stocks cannot be deemed either rational or irrational without analyzing their relative valuations. To the extent that the phenomenal winning streak of growth vs. value stocks in the runup to 2022 can be justified by commensurately superior earnings growth, it can be construed as rational. On the other hand, if the “rubber” of growth’s outperformance never met the “road” of superior profits, then at the very least you need to consider the possibility that crazy (i.e. greed, hope, etc.) had indeed entered the building.

The extreme valuations reached by many growth companies during the height of the pandemic bring to mind a warning that was issued by a market commentator during the tech bubble of the late 1990s, who stated that the prices of many stocks were “not only discounting the future, but also the hereafter.”

U.S. Value Stocks: Valuation Discount to U.S. Growth Stocks: (1995-2022)

 

Based on forward PE ratios, at the end of 2021 U.S. value stocks stood at a 56.3% discount to U.S. growth stocks. From a historical perspective, this discount is over double the average discount of 27.9% since 1995 and is matched only by the 56.6% discount near the height of the tech bubble in early 2000. This valuation anomaly was not just a U.S. phenomenon, with global value stocks hitting a 57.5% discount to global growth stocks, more than twice their average discount of 27.6% since 2002 and even larger than that which prevailed in early 2000 at the peak of the tech mania. Continue Reading…

$1.7 million to retire: doable or out of reach?

Front page of Wednesday’s Financial Post print edition.

Plenty of press this week over a BMO survey that found Canadians now believe they’ll need $1.7 million to retire, compared to just $1.4 million two years ago (C$). The main reason for the higher nest-egg target is of course inflation.

As you’d expect, the headline of the story alone attracted plenty of media attention. I heard about it on the car radio listening to 102.1 FM [The Edge]: there, a female broadcaster who was clearly of Millennial vintage deemed the $1.7 million ludicrously out of reach, personalizing it with her own candid confession that she herself hasn’t even begun to save for Retirement. Nor did she seem greatly fussed about it.

Here’s the Financial Post story which ran in Wednesday’s paper: a pick-up of a Canadian Press feed; a portion is shown to the left. The writer, Amanda Stephenson, quoted BMO Financial Group’s head of wealth distribution and advisory services Caroline Dabu to the effect the $1.7 million number says more about the country’s economic mood than about real-life retirement necessities.

BMO’s own client experience finds that “many overestimate the number that they need to retire,” she told CP, “It really does have to be taken at an individual level, because circumstances are very different … But $1.7 million, I would say, is high.”

Here’s my own take and back-of-the-envelope calculations. Keep in mind most of the figures below are just guesstimates: those who have financial advisors or access to retirement calculators can get more precise numbers and estimates by using those resources. I may update this blog with input from any advisors or retirement experts reading this who care to fill in the blanks by emailing me.

A million isn’t what is used to be

Image via Tenor.com

Back in the old days, a million dollars was considered a lot of money, even if that amount today likely won’t get you a starter home in Toronto or Vancouver. This was highlighted in one of those Austin Powers movies, in which Mike Myers (Dr. Evil) rubs his hands in glee but dates himself by threatening to destroy everything unless he’s given a “MILLL-ion dollars,” as if it were an inconceivably humungous amount.

The quick-and-dirty calculation of how much $1 million would generate in Retirement depends of course on your estimated rate of return. When interest rates were near zero, this resulted in a depressing conclusion: 1% of $1 million is $10,000 a year, or less than $1,000 a month pre-tax. When my generation started working in the late 70s, a typical entry-level job paid around $12,000 a year so you could figure that $1 million plus the usual government pensions would get you over the top in retirement.

Inflation has put paid to that outcome but consider two rays of hope, as I explained in a recent MoneySense Retired Money column. To fight inflation, Ottawa and most central banks around the world have hiked interest rates to more reasonable levels. Right now you can get a GIC paying somewhere between 4% and 5%. Conservatively, 4% of $1 million works out to $40,000 a year. 4% of $1.7 million is $68,000 a year. That certainly seems to be a liveable amount. More so if you have a paid-for home: as I say in my financial novel Findependence Day, “the foundation of Financial Independence is a paid-for home.”

Couples have it easier

If you’re one half of a couple, presumably two nest eggs of $850,000 would generate the same amount: for simplicity we’ll assume a 4% return, whether in the form of interest income or high-yielding dividend stocks paid out by Canadian banks, telecom companies or utilities. I’d guess most average Canadians would use their RRSPs to come up with this money.

This calculation doesn’t even take into consideration CPP and OAS, the two guaranteed (and inflation-indexed) government-provided pensions. CPP can be taken as early as age 60 and OAS at 65, although both pay much more the longer you wait, ideally until age 70. Again, couples have it easier, as two sets of CPP/OAS should add another $20,000 to $40,000 a year to the $68,000, depending how early or late one begins receiving benefits.

This also assumes no employer-pension, generally a good assumption given that private-sector Defined Benefit pensions are becoming rarer than hen’s teeth. I sometimes say to young people in jest that they should try and land a job in either the federal or provincial governments the moment they graduate from college, then hang on for 40 years. Most if not all governments (and many union members) offer lucrative DB pensions that are guaranteed for life with taxpayers as the ultimate backstop, and indexed to inflation. Figure one of these would be worth around $1 million, and certainly $1.7 million if you’re half of a couple who are in such circumstances.

Private-sector workers need to start RRSPs ASAP

But what if you’re bouncing from job to job in the private sector, which I presume will be the fate of our young broadcaster at the Edge? Then we’re back to what our flippant commentator alluded to: if she doesn’t start to take saving for Retirement seriously, then it’s unlikely she’ll ever come up with $1.7 million. In that case, her salvation may have to come either from inheritance, marrying money or winning a lottery.

For those who prefer to have more control over their financial future, recall the old saw that the journey of a thousand miles begins with a single step. In Canada, that step is to maximize your RRSP contributions every year, ideally from the moment you begin your first salaried job. Divide $1.7 million by 40 and you get $42,400 a year that needs to be contributed. OK, I admit I’m shocked by that myself but bear with me. The truth is that no one even is allowed to contribute that much money every year into an RRSP. Normally, the limit is 18% of earned income and the 2023 maximum RRSP contribution limit is $30,780 (and $31,560 for the 2024 taxation year.) Continue Reading…