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).

The great migration to Cash: Money Market and Short-Term Fixed Income

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Image from Pixabay: Alexander Lesnitsky

By Matt Montemurro, CFA, MBA, BMO ETFs

(Sponsor Content)

One of the biggest trends in the market, thus far in 2023, has been the flurry of inflows ($AUM) into money market and short-term fixed income. We have seen a “great migration to cash” as investors are literally being paid, handsomely, to park cash on the sidelines. We are now 6 months through the year and flows into the short end do not seem to be slowing down. Thus far YTD, we have seen $5.7bln flow into money market and ultra short-term fixed income ETFs, accounting for over 50% of all flows into fixed income ETFs in 2023 (Source: NBCFM ETF).

Money Market and Ultra Short-Term Fixed Income:  after years of being a forgotten segment of the market, how and why are they the leading asset gatherer?

With the accelerated path of rising rates, we have seen in the short end of the yield curve; (the overnight rate) the yield curve inverted. An inversion of the yield curve is caused when shorter-term rates rise faster than longer-term rates. Generally, this is something that occurs but reverses quite quickly.

Not this time. We are currently in a period of a prolonged yield curve inversion, which could be a leading indicator of economic weakness to come. This inversion is exactly what these money market and ultra short-term fixed income investors are looking to cash in on. Lock in higher shorter-term rates and take advantage of the inverted yield curve.

For too long, investors were forced to move outside of investment grade bonds and further out the yield curve to achieve their yield and return expectations. The market has shifted that paradigm on its head and allowed investors to truly get paid to wait on the sidelines in cash.

 Current Canadian Yield Curve

Source: Bloomberg, June 30, 2023

The short end appears to be the sweet spot for many investors, in terms of risk and reward.

Risk: by targeting the short end of the curve, investors will be minimizing their interest rate sensitivity (Duration exposure) and will generally be buying bonds that will be maturing in less than 1 year. Buying investment grade bonds, issued by high quality issuers, this close to maturity provides investors with downside protection as all these bonds will mature at par.[1]

Reward: Achieve a higher yield to maturity than further out the curve. Allowing investors to earn higher yields for lower interest rate sensitivity risk. The current market isn’t paying investors to lend money for longer periods. The front end provides an extremely attractive proposition for investors.

Today’s market is uniquely positioned and many market participants expect volatility to be on the horizon and as higher interest rates make their way through the economy, potentially causing growth to slowdown. Money market and short-term fixed income are well positioned for this environment, as investors can weather the potential volatility in the market while still meeting income and return needs. Continue Reading…

Looking to invest in AI? Consider a large-cap tech ETF

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Canadians asking how to invest in AI may want to consider an ETF holding large-cap tech stocks with diversified exposure to the rise of artificial intelligence

Deposit Photos

By David Wysocki

(Sponsor Content)

The rise of AI has sparked a huge wave of investor interest. Generative AI tools like Chat GPT have many Canadians asking how they can invest in AI, or wondering if they’ve missed the wave of excitement around this new technology.

We believe that this latest wave of excitement around AI is only the first stage of investor interest in what could become a technological mainstay for years or even decades to come. There could be hiccups and corrections in this area of the market in the short-term, but in the long-term we believe in the investment prospects of AI technology.

The question remains, though, where can Canadian investors go to find AI exposure for their investment portfolios? We believe that Canadians looking to invest in AI could consider the prospects of a large-cap technology ETF.

What is AI and how do companies make money from it?

AI stands for Artificial Intelligence and AI technologies are essentially machines that can perform cognitive functions we normally associate with a human mind. These are functions like critical analysis, prediction, and the creation of original works. AI tools are all around us and have been integrated into technologies for almost three decades, whether in gaming, online shopping, or social media.

In 2023 much of the focus around AI has been on one specific subset: generative AI. Generative AI is a form of AI focused on the creation of original works. Generative AI tools can write text or code, create images, even generate audio and video.

The business applications of AI in general, and generative AI in particular, are wide. First and foremost, generative AI can help businesses operate more efficiently. Many repetitive process tasks such as writing technical guides, analyzing legal text, conducting background research or even generating graphics can be done with an AI tool.

AI, however, cannot replace human workers entirely. In their current state AI technologies can add efficiency and scale to certain tasks, but they are not replacing human workers — especially highly skilled workers — en masse.

Companies in the tech sector developing AI software, as well as hardware tools that support AI, are seeing immediate business impacts as their AI tools are now in demand from a wide range of industries. So far, large-cap tech companies have been leaders in this AI race.

Why large-cap tech companies are AI leaders

The rallying value of technology stocks in 2023 so far has been driven largely by large-cap tech companies. In a still-uncertain macro environment, investors have flocked to large-cap tech for the combination of market share, business fundamentals, and exposure to innovation that these companies bring.

One of the innovation trends that has peaked investors’ interest is the rise of AI, specifically generative AI: tools like Chat GPT or Dall-E that can generate an original image or piece of text. What has made this AI investment trend interesting, however, is that it has largely focused on large-cap companies.

Historically, when a new technology comes into investors’ focus, large-cap companies capture some positive growth trends, but the biggest gainers in the short-term are usually smaller-cap tech companies tied directly to the new tech. In the case of generative AI, there has been a paradigm shift. Large-cap companies like Google, Meta, and Microsoft have been so quick to roll out and announce new AI tools that they’ve been some of the primary beneficiaries.

Put simply, large-cap companies have established leadership in the AI space. But, there’s another key reason why large-cap companies, especially combined in an ETF package, can be attractive for Canadians looking to invest in AI: diversification.

How diversified exposure can benefit an AI investor

It takes more than software to build a market-leading AI. The end output of a generative AI tool is built on incredibly complex algorithms, software platforms, cloud infrastructure, and — crucially — hardware like semiconductors.

Semiconductors are the fuel behind the rise of AI, as investors recently experienced through Nvidia’s stock boom. That spike followed forecasts from Nvidia of demand for its semiconductors from other large-cap tech companies building AI tools and platforms.

The rise of AI has had similar impacts on a range of different tech subsectors. It has impacted areas like tech devices, software, and hardware in different ways. Investors seeking exposure to AI can gain breadth of exposure through an ETF holding large-cap stocks from many tech subsectors.

The Harvest Tech Achievers Growth & Income ETF (HTA:TSX) works on the underlying investment thesis of investing in large-cap companies across the tech sector to gain diversification. HTA is designed to capture a range of growth opportunities in the technology sector, and the rise of generative AI has been a test case for the ETF’s long-term objective. Its varied exposure to large-cap companies in semiconductors, software, social media, and even IT services has allowed it to capture a wide range of positivity from investor interest in AI. Continue Reading…

Timeless Financial Tips #6: Aligning your Investments with your Time Horizon

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Lowrie Financial: Canva Custom Creation

By Steve Lowrie, CFA 

Special to Financial Independence Hub

I’ve spent my entire career railing against the dangers of market-timing — i.e., dodging in and out of markets based on current conditions. But there is a time when “timing” of a different sort matters. I’m talking about your investment time horizons.

Today, let’s look at how to use your personal time horizons to successfully separate today’s spending from tomorrow’s future wealth.

Spending and Investing over Time

One of the reasons we advocate for holding a diversified investment portfolio is because your investment horizons are diverse as well:

  1. For immediate spending, you’ll need cash reserves, which almost don’t count as investments.
  2. To preserve what you’ve already got and smooth out the ride, we turn to medium-term holdings such as bonds.
  3. For your long-term spending plans, nothing beats the overall staying power of owning a slice of the corporate pie, typically in the form of stocks, stock funds, or similar equity stakes in markets around the world.

On that last point, global equity markets are relatively dependable in one sense: by delivering on the success of collective human enterprise, they’ve delivered strong, inflation-busting returns in the long run. But these same markets are also quite chaotic in the near-term, with big, unpredictable price swings along the way. This means not all your dollars belong in this arena to begin with: only the ones you’re prepared to invest in for a good, long while. In other words:

Your cash reserves are for spending sooner than later. Your long-term investments are there for your future self, rather than as an ATM-like source for immediate spending.

Market-Timing vs. Financial Planning

How do you determine how long is “long-term” for your investments? Unfortunately, many investors use market-timing instead of personalized financial planning to decide when it’s time to move their money in and out of various positions. They pile into the action when markets surge and flee as they plummet. This is a timeless timing tragedy that foils the ability to preserve, if not grow, wealth over time.

Instead, use your own goals and investment timeframes to decide how much of your wealth to invest in pursuit of higher expected returns, as well as how much to shelter against the uncertainty.

  • For upcoming spending needs, your money may be best kept in cash or similar humdrum holdings. That way, it’s there when you need it. The catch is, cash and cash-like reserves aren’t expected to keep pace with inflation over time, which means your spending power gradually shrinks. So …
  • For spending that’s still years away, you’ll want to own positions that are expected to generate new wealth, rather than just maintain a status quo. That’s where the wonder of global enterprise comes in — aka, stocks. The catch here is, you must commit to keeping your future money patiently invested and ride out the downturns along the way.

Estimating your Time Horizon

Even if you’re committed to financial planning, it’s surprisingly common to underestimate how much time you’ve actually got to invest. For a couple retiring at age 65, there is a 50% chance one of you will live past age 90, which means your retirement timeline could be 25–30 years, or more. Extend it even further if you’d also like to leave a substantial financial legacy. Continue Reading…

Benefits and Drawbacks of Payroll Software

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By Daniel Bailey

(For Financial Independence Hub)

Payroll software eliminates the need to calculate payroll for your team manually. It also helps you track tax laws and deductions automatically. Look for a system with a simple interface and clear, contextual feature hints for non-technical staff. It should also provide secure integrations with HR and accounting platforms to bring these three departments under one roof.

Time-Saving

Payroll software can save your company a lot of time and money. For example, it eliminates the need to print paper timesheets and payslips for every employee. It reduces the amount of storage needed in your office and allows you to customize the payroll data for each employee. In addition, payroll software can also automatically send payments to employees, government agencies, and benefits providers. It can also file payroll taxes and handle end-of-year tax forms for employees. It will reduce your accounting department’s time running payroll and allow them to focus on more important tasks.

Additionally, payroll systems can store all your data in a single digital system, making it easy to access and analyze at the end of each pay period. You can use this information to plan future staff costs and budgets more accurately. Additionally, these systems can help you improve project returns by analyzing the number of hours your employees work. However, it is important to remember the costs associated with implementing payroll software. These costs can be recurring or one-time and include the cost of the software itself, plus ongoing maintenance. Some vendors offer a monthly subscription for a fixed number of users, while others charge a per-employee fee or a one-time purchase price.

Security

When a company chooses the right payroll management software, it’s crucial to consider security. Ensure that the solution offers data encryption and other protective features. It is especially important if you’re dealing with sensitive employee information. It will protect the organization’s employees from hackers and ensure no one can access private information that shouldn’t be shared. A decent payroll system should also provide safe connectors so payroll personnel and employees may use the platform from any location and device. It makes it easier to manage the different teams involved in payroll processing. For example, it should have a feature that allows employees to change their bank account details and other personal information without contacting HR. Continue Reading…

5 ways Scammers are Targeting your Bank Account

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By Devin Partida

Special to Financial Independence Hub

Scammers use various tactics to target victims’ financial data today, ranging from malware to fake giveaways.

People can protect themselves and their data online by understanding the risks at play.

Here are the top five bank account scams everyone should know about:

1. Phishing Emails and Texts

Phishing is one of the most common tactics scammers use to target victims’ bank accounts. Reported phishing attacks rose 61% in 2021, surpassing 1 million incidents worldwide. These attacks use deceptive messages to trick victims into giving away personal information, frequently including banking data.

Phishing messages most often come in the form of emails or texts. Scammers write the messages so they appear to be coming from a bank or credit card company. Usually, there is some urgent emergency in the phishing message that demands an immediate response from the victim. For instance, a phishing text might warn a victim that money was removed from their account.

This tactic aims to scare victims into panicking and responding to the message right away. Despite the urgency of messages like this, people must always contact their bank or credit card company directly to ask about the message before responding. This might take some time, but it ensures that phishing attacks fail to harvest sensitive banking information.

2. Online Shopping Scams

Online shopping scams are becoming more popular today, and they can be tricky to spot. These scams involve online stores collecting users’ bank account information in the background. They may or may not fulfill orders and can sell any kind of products. However, it is usually a sign that a store is a scam if an order is not fulfilled.

Online shopping scams often feature very cheap products. If something looks like a good deal, unsuspecting victims are more likely to fall for the scam. The store website may function smoothly and look like any other shopping website. A lack of customer service is a key giveaway that a store is probably a scam.

3. Fake Fraud Alerts

Fake fraud alerts are a specific type of phishing scam that leverages victims’ preexisting fear of data and identity theft. These dangerous fake messages are disguised as fraud alerts and may even specify the victim’s bank or credit card company.

A great example is the “account takeover” scam, which takes over a victim’s account by getting them to respond to a fraudulent account takeover alert. Like a self-fulfilling prophecy, once the victim responds to the fake message, they give the scammer the data they need to take over the victim’s account.

Luckily, there are a few ways to spot this kind of scam. If the message asks the victim to share personal information, it is most likely fraudulent. No bank or credit card company will request personal information via email, text or unsolicited calls.

Victims of this type of scam should check their bank or credit card activity directly, as well. Checking will usually reveal that no one withdrew money or accessed their account without permission.

4. Award, Prize, Giveaway and Lottery Scams

One type of bank account scam on the rise is fake awards, prizes, giveaways and lottery announcements. These scams often appear as emails and text messages but can also pop up as ads online. For example, YouTuber MrBeast has warned fans of a widespread scam impersonating him and claiming to give away free money.

This type of scam will usually ask victims to pay a “shipping” or “processing” fee or request bank details for transferring the prize money. After the victim gives this information or makes a payment, they never hear from the scammer again and don’t get any prize or money. Continue Reading…