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).

A great business + great planning = A great Retirement

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By Mark Bertoli, IPC Securities Corporation

Special to the Financial Independence Hub

It has been estimated that over the next decade there will be approximately $1 trillion in personal wealth transferred from one generation to the next. A great portion of that wealth is currently tied up in equity within Canadian small businesses. A recent study conducted by IPC Private Wealth, a division of Investment Planning Counsel (IPC) revealed some startling statistics.

A full 42% of business owners are uncertain about their retirement and what is more alarming is that almost half of business owners (48%) do not plan to seek the advice of an advisor. Some of the existing plans of business owners consist of working until they are unable to do so (36%) or exiting when they have enough money (25%). One highlight is that 29% of business owners plan to run their business until their successor is ready.

How to maximize the value of a business

Start with a plan: it is a great strategy to start early. A 10-year plan is a good starting point. Seeking a financial advisor with experience in business transition is a great advantage. This may be the owner’s first business sale but the advisor may have navigated these waters many times and has the advantage of knowledge. The advisor may bring in specific expertise to increase the value of the business. If an advisor – who truly acts as a coach – is brought into the situation, one of the first projects would be to systemize the operation and create a turnkey situation. The business is then far less reliant on the owner and more valuable to a potential buyer or successor. With time on your side, many other strategies may be employed.

A family business or a liquidity event

When selling or transitioning a business, there are several steps that are critical to its future success, as well as the social continuity of the seller, buyer, or heir. Continue Reading…

Artificial Intelligence: Can a machine invest better than a human?

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By Chris Nicola

(Sponsor Content)

Wouldn’t it be nice if we could just ask a computer, “what should I invest in?” In theory, sure. But given the current state of artificial intelligence, I wouldn’t bet your money on it just yet. Simpler, tried-and-true analysis tools help us to do this job without putting our client’s money on the line.

Now, you might think AI for investing is inevitable. After all, intelligent people are coming up with new uses for AI all the time. Diagnosing eye problems. Helping corporate boards hire with diversity in mind. We can make art with it, or use it to spot fake art. With self-driving cars, we’re literally putting AI in the driver’s seat. So, why not AI for investing? In fact, it’s already happening — through the “AI Powered Equity ETF (AEIQ), which invests in a variety of U.S.-based companies and seeks to beat the returns of the S&P 500.” The numbers in this report from July show the ETF was up 8 per cent this year, while the S&P 500 has gained about 1.5 per cent YTD.

Who knows what the future could hold for AI’s capabilities? Let’s take a deeper look.

Why I’ve got AI for investing on the brain right now

I recently spoke about AI at The Summit for Asset Management and I realized that the subject of investing using AI would probably also interest many of WealthBar’s own clients. So here’s what I spoke about and some of my thoughts on the role of AI in the future of automated investing.

Who am I? I’m WealthBar’s Co-Founder and Chief Technology Officer. At WealthBar, my team and I design and build our mobile and online experiences for clients. We also decide what technology solutions to use and how to use them.

AI is really cool right now. It gets a lot of attention and I’d be lying if I said I wasn’t excited by the potential. However, I also need to ensure we’re using the right tool for each job. So far, we have not been convinced that AI is the best solution for the kinds of the problems we currently solve for our clients. More importantly, the current understanding of AI today leads to far more questions and concerns than answers. The biggest of these questions is our inability to explain exactly how an AI algorithm learns and why it makes the decisions it does.

AI-powered? Don’t believe the hype

What is AI?

Artificial intelligence can learn without being explicitly programmed. 

That seems like a good definition that I would use, though what we think of when we say AI and what it really means can be two different things.

Some people will think of AI as a general intelligence: basically, a piece of software, machine or robot that thinks like a human, like in so many science fiction movies that have come out in the past few years (I, Robot, Ex Machina, Her, etc). We’re pretty far from that in real life. But for now, we’re using a definition of AI that’s more limited, precise utility — and one that could have some real applications in the investing world.

AI for investing. How does it work? And how could it work?

Right now, we use it to take on specific tasks. In theory, we could ask an AI “what should I invest in?”

Some financial firms are experimenting with this, or they say they are. But scratch the surface. You find that their process is just based around linear regression. They do some math, which has been around since long before computers. Linear regression is a quick and practical tool that the financial industry has been using for as long as there has been a financial industry. Continue Reading…

Motley Fool on Market Cycles: How worried should investors be?

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Talk about strange timing! Last weekend, right before this week’s sharp market sell-off, the Motley Fool Money podcast featured an interview with Howard Marks, the influential money manager at Oaktree Capital. Marks has just released his second book, Mastering the Market Cycle, which I promptly bought and downloaded on Kindle and read over the (Canadian) Thanksgiving weekend.

Subtitled Getting the Odds on Your Side, the book is only Marks’s second, following the 2011 publication of The Most important Thing: Uncommon Sense for the Thoughtful Investor. What was clear about the podcast and the book is that Marks felt that the current market cycle is closer to a top than bottom. In fact, late in September Motley Fool Money’s lead podcaster Chris Hill titled a blog “How worried should we be about Howard Marks’ Market Caution Warning?”

Cautious Optimism

Maybe a little, it turns out, although at the time of that podcast Marks’ mood was one of “cautious optimism.” Since then the market seems to have shifted a bit more from optimism to caution. As it happens, Wednesday’s 800-plus plunge in the Dow occurred just two days after I personally started to rebalance our portfolios, partly inspired by my weekend reading, so the new book was quite relevant.

Book publishing being what it is, and with much of it largely written in 2017, Marks doesn’t come right out and declare that the market is near a top; authors tend to be aware that books need to stand up for a few years. However, a quick look at his web-based market commentaries underline his cautious approach. As Hill pointed out in his conversation with Tim Hanson, Marks’ memos may not be quite as well known as Warren Buffett’s, but he nevertheless has a strong following.

At age 72, Marks has seen more than his share of market cycles and claims to have been able to profit from most of the biggies: from the 1999 Tech Wreck to the 2007 Global Financial Crisis. In fact, he’s been around long enough to remember the famous Nifty 50, which were perhaps analogous to today’s mania for FANG stocks. Continue Reading…

What a market decline looks like for a balanced investor

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By Scott Ronalds

Special to the Financial Independence Hub

EDITOR’S NOTE: This blog was first published on the Steadyhand site in January and is being rerun today to provide some insights into this week’s severe market downturn.

I have no greater insights than you do on what the markets might do over the next several months. But it’s been a while since we’ve had any kind of meaningful pullback in stocks and we’re due at some point. It may not happen next quarter, next year or even this decade. But as I noted in my last post, declines and bear markets are a normal part of investing. Are you prepared?

I find the best way to test yourself is with real money. Let’s say you’re a balanced investor and your portfolio is worth $400,000, all invested in the Founders Fund. A modest decline in the markets might see the fund fall 3-4% over a few months. This doesn’t sound like much. Put it in dollar terms though, and it takes on a different meaning. $12,000 to $16,000 sounds much greater – and feels much worse – than 3-4%. Still, no big deal considering the gains you’ve likely seen over the last few years.

Now assume markets experience a sharper decline and the fund drops 6% over 6 months. Your portfolio is now down $24,000. What would you do?

Would you really sit tight if things got worse?

Let’s turn it up a notch. Investors have soured on stocks and markets are under severe pressure. We’re officially in bear market territory with stocks down over 20% and the fund is hypothetically down 12% over 10 months (the fixed income component is providing ballast). That’s $48,000. The media and financial pundits are calling for further losses. Your neighbour’s bragging about how he moved to cash a year ago and is telling you to get out of the market and buy gold. Again, what do you do? Continue Reading…

Stop trying to correct for market corrections — revisited

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By Steve Lowrie

Special to the Financial Independence Hub

In 2015, I published an extended series of “financial stop-doing” posts, suggesting what investors could STOP doing, if they wanted to START building more durable wealth. Almost three years ago to the day – on September 8, 2015 – my “stop-doing” post began as follows:

“Recently, the market has been playing right into an important addition to our financial “STOP Doing” list: Stop trying to correct for market corrections.”

Time has passed, but one thing has remained the same: As current overall markets have again been ticking upward for quite a while, I’m again hearing investors fretting over when the fall will arrive, and whether they should try to get out ahead of it. Since my response remains the same today as it was then, I’ll reprint it for your re-viewing pleasure, updated to reflect the most current available data.

The subject is not a new one to us. In August 2014 and again in 2015, we posted this Q&A: “Is there going to be a market correction (and, if yes, then what)? In light of current events, we’ve now updated that post with current year-end information.

Just as it takes no special skill to predict some days of sub-zero temperatures this winter, we were not being prescient when we said that we would probably experience a correction sooner or later. One need only consider abundantly available evidence to recognize that, viewed seasonally, the market frequently “corrects” itself, sometimes dramatically. It’s only when we take the long view that we can see the market’s overall upward movement through the years.

For example, consider this Dimensional Fund Advisors slide depicting the US stock market’s gains and losses during the past 35 years. The narrow lines illustrate wide swings of maximum gains and losses in any given year. The blue bars show the year-end gains and losses after the dust has settled. Clearly, far more years ended up than down, for overall abundant growth.

This illustration is substantiated by similar findings from JP Morgan.  According to their data, covering 1980–2017, the average intra-year decline of US stocks (measured by the S&P 500) was 13.8% per year, but the annual returns were positive more than 76 per cent of the time, in 29 out of those 38 years.

But first we’d like to challenge the word “correction.” We prefer to think of price volatility as simply part of doing business in the market to begin with. Ever the individual to tell it like it is, Dimensional Fund Advisor’s retired executive Dan Wheeler had this to say in one of his classic blog posts, “The Spinning ‘Talking Heads’”: Continue Reading…

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