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).

Is Venture Capitalism right for your Business?

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By Daniel Bailey

For the Financial Independence Hub

Launching a startup is a daunting challenge. Not only do you need to have an innovative idea for a product or service, but you need to secure funding to support the company until it begins to turn a profit. There are many options for funding and you may try to obtain a bank loan, angel investor or venture capitalist to help your business thrive. In many cases, a venture capitalist will be the most beneficial as you can receive managerial and technical advice in addition to financial assistance. Venture capital is not the right solution for every startup, however, so make sure you can answer these five questions to determine if it is the best option for your business.

Do you have a Prototype or Business Model ready?

It is not enough to simply have an idea for a great new product if you want to attract investors. You need to have a prototype to showcase during your pitches for financial assistance. Not only just you have a working prototype, but it needs to be refined so investors can see that you have already assessed it and accounted for minor problems in the design. Your final prototype will likely look much different than the initial one, so it is crucial to have performed the necessary construction and made changes before approaching potential investors. If you do not have a prototype or a solid business model in place, your company is not ready for the growth a venture capitalist usually brings.

Is it the right time to seek an investor?

Seeking an investor out immediately after you have an idea for a new business is a mistake. If you want your company to be successful, you must perform a few critical steps before searching for an investor, especially if you intend to seek out a venture capitalist. Venture capitalists such as Mark Stevens, the managing partner of S-Cubed Capital, look for startups with limited revenue and potential for explosive growth. You should work to get your company’s name out to customers so you can build a solid customer base and establish a solid projection for future profits so you can meet these criteria and attract investors.

Are you willing to share equity in your company?

Unlike traditional bank loans or angel investors that simply offer financial backing, venture capitalists often take a stake in the company’s equity in exchange for their expertise. T Continue Reading…

How to manage your Finances in your 20s

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By Cloe Matheson

Special to the Financial Independence Hub

Your twenties are often touted as the best years of your life. They’re full of fun, frivolity, and finding out who you are. But it’s easy, as a twenty-something, to surrender any thought of saving for your future.

Now, we aren’t saying that every millennial will squander their chance of buying a house because they spend too much money on smashed avocado toast. There are, however, a few key things that we could all do better in our twenties to manage our finances. Want to know how to save your pennies for the future? Here are some top tips.

1.) Don’t get into (more) debt

Most of us will already have large loans to pay back for college. Avoid saddling yourself with even more debt by buying things you can’t afford. This habit will only lead to a world of pain in the next decade of your life.

So how do you avoid getting yourself into financial trouble by spending carelessly? Firstly, evaluate and reflect whenever you look to purchase items over a hundred or so dollars. It’s not only big-ticket purchases you need to watch out for, either. All those discretionary purchases – a top here, a coffee there – really do add up. 

Unsplash

2.) Build your credit history

You also need to build up your credit history carefully and surely. For many banks and mortgage brokers, a total lack of debt signals financial immaturity. Start building a solid credit history by making a small purchase on credit (say, a washing machine), and promptly paying the moneylender back.

3.) Learn to live with less

It might take some philosophising, but it’s time to re-evaluate your attitude toward material things. Young people tend to compare their circumstances with their friends’ more than most. There’s also a tendency to covet the gadgets and homes that we see plastered on social media. But you don’t need to live this way to be happy. Continue Reading…

Rebalancing in Down Markets: Scary, but Important

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By Steve Lowrie, CFA

Special to the Financial Independence Hub

If there is a universal investment ideal, it is this: Every investor wants to buy low and sell high. Fortunately, there is a disciplined process for doing just that. Plus, it can help you stay on track toward your personal goals, even during down markets. The process is called rebalancing. 

When you create your new portfolio, it’s best if you do so according to a personalized plan that prescribes how much weight you want to give to each asset class. So much to stocks, so much to bonds … and so on. Assigning these weights is called asset allocation.

However, as markets shift around, your investments stray from their original allocations, until they’re no longer invested according to plan. When this happens, you end up taking on higher or lower market risks and expected rewards than intended.

Rebalancing shifts your assets back to their intended allocations.

A Bear Market rebalancing illustration

Imagine you have planned for a portfolio mix of 50% stocks and 50% bonds. Then a bear market comes along, in which stock prices tend to decrease and bond prices increase. Your mix may no longer be 50/50. To rebalance, you sell some of the now-overweight bonds, and use the proceeds to buy low-priced stocks. In doing so, you are not only keeping your portfolio on track toward your goals, you’re selling high (overweight holdings) and buying low (underweight holdings), all according to plan.

Striking a rebalancing balance

Rebalancing is an important portfolio management tool. But like any power tool, it should be used with care and understanding.

It’s scary to do in real time

Everyone understands the logic of buying low and selling high. But when it’s time to rebalance, your emotions make it easier said than done. When markets are down, you must sell some of your assets that have been doing okay and buy the unpopular ones. In retrospect, history has shown us this is a sensible thing to do. But at the time, it can take a brave leap of faith that our capital markets will ultimately recover and continue to grow (as they always have before). Continue Reading…

Tips for transitioning your employees to work from home

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By Shannon Hicks

For the Financial Independence Hub

For businesses to thrive, they must give importance to their employees. They are an essential part of any company because their competence is what drives growth.

As an employer, there are a number of practices that you can adopt to make your employees more efficient at their tasks, especially in these times when a worldwide health crisis is at hand and most employees are at home.

Working from home poses a lot of obstacles to employees. Hence, as an employer, it is important to motivate them to concentrate on their respective tasks. This way, even though the whole world and economies have been disrupted, your business is still able to generate high-quality outputs.

Here are some tips to transition your employees to working from home:

1.) Help them set up their workspace at home

The first problem that employees face when they start working from home is whether or not they have the hardware necessary to carry out their tasks. So, as an employer, it should be your first concern as well.

Thus, when transitioning your employees to work from home, ask them if they have the necessary equipment or hardware, such as a computer, for them to be able to perform their tasks. If they lack the essential implements, then, allow them to borrow those from the office. Let them take home the units they use at work; after all, no one would be using those. Of course, they need to return the devices once they resume working at the office.

Furthermore, allow your employees to download or install applications that your company will be using to communicate and manage tasks. Make it clear which tools and workforce management system will be utilized so they can have them installed on their respective devices as soon as possible.

For example, Slack can be used for communication purposes, while Zoom can be used for teleconferencing. Making this clear early on will allow your employees to familiarize themselves with the tools, so they would be efficient in using them as soon as they need to.

AdobeStock

2.) Be flexible in your working policies

Each employee will have a different setup at home. While some are living alone in their own apartments, some are with their families and may even have kids at home. Thus, it is understandable that when employees start working from home, they will have different schedules as to when they are best able to work.

So, when making policies for employees working from home, be understanding of their circumstances. For example, you may not need to set specific working hours; rather, keep them focused on finishing tasks before or on the deadline.

For better communication, you can schedule a weekly or bi-weekly teleconference, or you can also take advantage of a specific time when everyone is available. Thus, communication is always open and everyone can regularly give updates on their tasks.

3.) Keep communication lines open

Weekly teleconference or virtual meetings should not be the only time that managers and employees are able to talk and give updates. Continue Reading…

Should Investors have FOMO?

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By Cory Clark

Special to the Financial Independence Hub

Nobody knows if we have reached the turning point in the year’s pandemic-induced market meltdown. The markets are not quite as scary as they were at the beginning of March when some markets lost nearly 20% of their value in a single day.

Some recoveries are rather swift, while others take a little more time, but there is one way to know when the market has reached its bottom … just kidding …. there is no way of knowing, and that’s exactly why the average investor should not be bailing out of their positions when storm seas get rough.

If you decide that you can’t stand the risk of loss and fear that goes along with it, the only way to sell and successfully mitigate losses is to make two correctly timed decisions. Not only must you sell at the right time, but you must also re-enter at the right time. DALBAR has been studying investor behavior since 1994, and it is painfully obvious from history that investors are not going 2-0 and timing it right on both ends.

The common rationalization for selling out at the worst time is that if you are not losing money, you must be better off, right? This an example of a dangerous investor behavior known as risk aversion, and from an economic standpoint it is an invisible hole in the bottom of your bucket. Investors love to make money, but they hate to lose that same amount of money even more. So being out of the market and avoiding a loss provides a measure of comfort, but being out of the market and losing out on a similarly sized gain tends to go unnoticed. But when looking at your investor statement, or when projecting future retirement income, money you lose and money you should have (but didn’t) gain will all have the same net effect on that bottom line.

Don’t get out if you don’t know when to get back in

The situation of today’s average investor perfectly illustrates in live action what DALBAR’s Quantitative Analysis of Investor Behavior (QAIB) has been teaching investors and advisors for years; don’t get out if you don’t know when to get back in.

Imagine an investor who reached their breaking point sometime in March, and sold their equity position with the intention of buying back in when the coast is clear. Not long after, the markets started to shoot back up aggressively, much earlier than anticipated. Now doesn’t that put this investor in a precarious situation? Who wants to be “that guy” (or gal) who buys back into the market after the biggest daily gain ever? If the recovery ends up being a false start, this investor could lose a significant chunk of his portfolio … AGAIN. So perhaps this investor doesn’t fall for a potential false bottom and continues to wait …. and wait … and wait … until the recovery is certain. Unfortunately, by the time the recovery is certain, it’s over and this investor has missed the boat. Continue Reading…

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