Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

Why you need to focus on providing Great Customer Service

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By Sia Hasan

Special to the Financial Independence Hub

Now more than ever, offering the best customer service that you can is essential. Even though most business owners are aware that it is important to provide quality service, they still may not understand how big of a difference it can make for their business, or just why it is so necessary.

The reality is that over time, customers’ opinions and thoughts about businesses have become increasingly important. Not only that, but because the internet makes it so easy for them to share their thoughts, business owners need to find more ways to make sure that their thoughts about their companies are positive. If you are looking for some ways to help ensure you are building a strong connection with your customers that will help your business flourish, here are some things to think about:

Doing Research is Key

When it comes to offering great service, research should be your first step. From making sure that you have a solid knowledge of CDP [Customer Data Platform] to taking the time to look deeply into your analytics, doing your research will help guide you in the right direction when you are looking to offer better service. Not only will it help you to get to know your customers better, but it will also allow you to know what areas your business needs the most work in. The more research you do at the beginning of the process, the less work you will have to do later on.

Use your Social Media wisely

If you are looking to improve customer service, then social media is your best friend. Social media isn’t just a great way to spread information about your company, it is also great for getting to know your customers better, and for offering them service in a way that works for them. More and more, customers are spending their time on social media and looking to connect with businesses and brands there, as well. This means that you need to be active on social media, and make sure that you are there to connect with them, too. Continue Reading…

MoneySense Retired Money: Are Asset Allocation ETFs truly diversified?

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OptimizedPortfolio.com

My latest MoneySense Retired Money column looks at the dilemma many retirees and would-be retirees face these days: that with sky-high stock prices and interest rates seemingly bottoming and headed up, there’s no such thing as a truly “safe” investment. Click on the highlighted headline for full column: Is the All-Weather portfolio the answer to the shortage of “safe” investments? 

Even supposedly safe bonds, bond funds or ETFs largely suffered losses in 2021 as interest rates seemed poised to rise: now that various central banks are starting to hike rates, such pain seems destined to continue in 2022 and beyond.

Yes, short-term bank savings accounts and GICs seem relatively safe from both stock market meltdowns and precipitous rises in interest rates, but then there’s the scourge of inflation. Even if you can get 2% annually from a GIC, if inflation is running at 4%, you’re actually losing 2% a year in real terms.

But what about those Asset Allocation ETFs that have become so popular in recent years. This site and many like it are constantly looking at products like Vanguard’s VBAL (60% stocks to 40% bonds) or similar ETFs from rivals: iShares’ XBAL or BMO’s ZBAL.

The nice feature of Asset Allocation ETFs is the automatic regular rebalancing. If stocks get too elevated, they will eventually plough back some of the gains into the bond allocation, which indeed may be cheaper as rates rise. Conversely, if stocks plummet and the bonds rise in value, the ETFs will snap up more stocks at cheaper prices.

But are these ETFs truly diversified?

True, any one of the above products will own thousands of stocks and bonds from around the world. They are geographically diversified but I’d argue that from an asset class perspective, the focus on stocks and bonds means they are lacking many other possibly non-correlated asset classes: commodities, gold and precious metals, real estate, cryptocurrencies, and inflation-linked bonds to name the major ones.

The Permanent Portfolio and the All-Weather Portfolio

I’ve always kept in mind Harry Browne’s famous Permanent Portfolio, which advocated just four asset classes in four 25% amounts: stocks for prosperity, long-term bonds for deflation, gold for inflation and cash for recessions.

A bit more complicated is the more recent All-Weather portfolio, from American billionaire and author Ray Dalio, founder of Bridgewater Associates. You can find any number of variants of this by googling those words, or videos on YouTube.com.  There’s a good book on this, Balanced Asset Allocation (by Alex Shahidi, Wiley), which makes the All-Weather portfolio its starting point. Continue Reading…

Inflation and Central Banks: Like having a Friend climb a Ladder

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By John De Goey, CFP, CIM

Special to the Financial Independence Hub

Various people have asked me to weigh in on our inflation situation with a particular focus on what central bankers should do about rates going forward.

The ‘what to do’ elements include queries about when to hike, how much, how often and to what end.

I like to use metaphors and the one that fits here is one of having someone you care about climbing a ladder.  In this scenario, the ‘friend’ is a mashup of the economy and markets (specifically, both the stock market and the real estate market), the ascension up the ladder is the seeming inexorable climb of prices and valuations, and the decision to tip the ladder over is the decision to raise rates.  Here’s the problem …

Let’s say someone you care about is climbing a ladder and you have been given the task of holding the ladder steady, stable, and firmly rooted on the ground while that person climbs.  In this case, “price stability” equals “ladder stability.” It’s a tall ladder and conditions are becoming increasingly perilous.  As your friend ascends, it eventually becomes clear to you that communication has been lost: your friend is now so far up that they cannot hear your pleas to reverse course.  It’s dangerous.  You know it, but your friend keeps climbing higher.

Central bankers caught in a dilemma

In this scenario, you know that if you were to tip the ladder over, your friend would be seriously hurt.  Conversely, you could do the ‘responsible thing’ and not tip the ladder over, but if you did that and your friend ended up falling from an even higher position, the consequences could be deadly.    Central bankers are caught in the horns of a dilemma. Continue Reading…

Best Investments across different Age Demographics

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Special to the Financial Independence Hub

Investing is a vital part of a person’s financial life. Whether you’re trying to aggressively grow your assets or prepare for retirement, investing is crucial for reaching your goals. There are several different types of investments that you can make throughout your lifetime, depending on your financial situation and what age demographic you’re in. Investment strategy can and should change as you get older, as your focus begins to shift from your career, to retirement, and beyond. Let’s take a look at three different age demographics and some investment tips for each.

20s –30s: Career Focused

At this age, you may be fresh out of college with a heavy amount of loans to pay off while starting at an entry level position with low income. In this situation, your first thought may not be to start investing your money and saving for retirement. This is understandable, but it’s also a mistake. Investing at a young age will better set you up for the future. Start to put some of your money into a retirement account like a Roth IRA. The IRS allows you to put up to $6,000 a year into your Roth IRA. If your company has a 401(k) plan, that’s another easy way to start saving for retirement especially if they’ll match a certain percentage of your paycheck.

Another popular way of investing is in real estate. Unlike stocks, you can assess its value and what profit it will bring you prior to investing. Especially at this young age you can begin to work on improving your credit score so that you’re able to buy homes and earn passive income. If you get lucky enough to find a home or apartment for a low selling price, you can resell or rent it out to make a large profit. Looking for investments that are low risk and high reward may be best for this age, especially when you don’t have a high amount of income.

40s –50s: Retirement Focused

You’re heading toward retirement age, most likely deep into your career, and have a significant increase in your income. Investing in more stocks and bonds is a great way to earn extra cash to prepare for your coming retirement. Along with that, your Roth IRA and/or 401(k) account most likely have a hefty amount accumulated. It’s suggested that you prioritize saving over spending at this age as it can benefit you immensely once you retire. Continue Reading…

Out of the Fire and into the Frying Pan

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By Noah Solomon

Special to the Financial Independence Hub

Why We Seek the Advice of Experts

In many aspects of our lives, we defer to the judgement of experts, whether they be doctors, lawyers, or investment managers. People rely on experts’ training, experience, and intuition, which should enable them to make better decisions than lay people in their respective fields. Unless you graduated from medical school, it would be inadvisable for you to self-diagnose. Similarly, one would think that professional investors possess the knowledge and expertise to achieve superior results than their clients could achieve on their own.

Out of the Fire and into the Frying Pan

We readily concede that in most cases, experts are capable of making better decisions than their non-professional peers. However, the simple fact is that experts are not as logical and unbiased as you may believe. Specifically, there is a robust body of academic literature spanning over 60 years that clearly illustrates that experts produce worse results than data driven rules-based models.

In 1982, James Simons, an award-winning mathematician, founded investment company Renaissance Technologies (RenTec). The firm strictly adheres to mathematical and statistical methods and is regarded as the most successful hedge fund in the world. Its signature Medallion fund is famed for having the best investing record in history, returning more than 66% annualized before fees and 39% after fees over a 30-year span from 1988 to 2018. Simons stated:

“If you do fundamental trading, one morning you feel like a genius, the next day you feel like an idiot … by 1998 I decided we would go 100% models … we slavishly follow the model. You do whatever it [the model] says no matter how dumb or smart you think it is. And that turned out to be a wonderful business.”

Simons’ sentiments are echoed by legendary investor Ray Dalio. Dalio is the founder of Bridgewater Associates, the world’s largest hedge fund, and is regarded as one of the greatest innovators in the finance world. Over the last 20 years, Bridgewater’s Pure Alpha Fund has delivered a near 20% annual compound return before fees. Dalio believes that everything can be analyzed and quantified. He stated that 99% of the time he agrees with the output of Bridgewater’s quantitative investment models. He also confessed that on the rare occasions when he has disagreed with the machine, it was right 66% of the time.

Experts? We Don’t Need No Stinkin’ Experts!

It seems logical that someone with an MBA from a top business school and decades of experience can beat a rules-based model. The expert’s hypothesis, which asserts that experts outperform models, is predicated on the following statements:

  1. Experts have access to qualitative information.
  2. Experts have more data.
  3. Experts possess intuition and experience.

In theory, these attributes should result in superior decisions and results. However, the evidence demonstrates that these alleged advantages are anything but. There is an abundance of anecdotal and empirical evidence that suggests that the three pillars underlying the expert’s hypothesis not only fail to translate into superior decisions, but generally tend to lead to inferior results.

More Is Less, both in Football and in Markets

Intuitively, having access to more information should lead to better decisions. However, studies have shown that the opposite is likely to be the case.

Meredith Whitney became famous for predicting the banking crisis of 2008. In a December 2010 segment of 60 Minutes, she outlined her gloomy forecast for the municipal bond market, stating that there would be 50 to 100 sizeable defaults. Continue Reading…