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).

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…

Violating my Principles

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By Noah Solomon

Special to Financial Independence Hub

As I have written in the past, predicting stock market returns is largely an exercise in futility. Over the past several decades, the forecasted returns for the S&P 500 Index provided by Wall Street analysts have been slightly less accurate than someone who would have merely predicted each year that stocks would deliver their long-term average return. Importantly, not one major Wall St. strategist predicted either the tech wreck of the early 2000s or the global financial crisis of 2008-9.

To be clear, I am still adamant that consistently accurate forecasts are beyond the reach of mere mortals (or even quant geeks like me). Any investor who could achieve this feat would reap returns that put Buffett’s to shame. However, there may be some hope on the horizon. Good is not the enemy of great. The objective of any investment process should not be perfection, but rather to make its adherents better off than they would be in its absence.

To this end, I have decided to sin a little and model some of the most commonly cited macroeconomic variables that influence stocks market returns, with the objective of (1) ascertaining whether and how these factors have historically influenced markets and (2) what these variables are signaling for the future.

Don’t Fight the Fed

It is often stated that one shouldn’t fight the Fed. Historically, there has been an inverse relationship between changes in Fed policy and stock prices. All else being equal, increases in the Fed Funds rate have been a headwind for stocks while rate cuts have provided a tailwind.

Prior 1-Year Change in Fed Funds Rate vs. 1-Year Real Returns: S&P 500 Index (1960-Present)

As the preceding table illustrates, the difference in one-year real returns following instances when the Fed has been pursuing tighter monetary conditions has on average been 6.6%, as compared to 10.6% following periods when it has been in stimulus mode.

As of the end of June, the Fed increased its policy rate by 3.5% over the past 12 months. From a historical perspective, this change in stance lies within the top 5% of one-year policy moves since 1960 and is the single largest 12-month increase since the early 1980s. Given the historical tendency for stocks to struggle following such developments, this dramatic increase in rates is cause for concern.

Valuation, Voting, and Weighing

Over the past several decades, valuations have exhibited an inverse relationship to future equity market returns. Below-average P/E ratios have generally preceded above-average returns for stocks, while lofty P/E ratios have on average foreshadowed either below-average returns or outright losses.

Trailing P/E Ratio vs. 1-Year Real Returns: S&P 500 Index (1960-Present)

Since 1960, when P/E ratios stood in the bottom quintile of their historical range, the S&P 500 produced an average real return over the next 12 months of 9.4% compared with only 6.9% when valuations stood in the highest quintile. Sky high multiples have proven particularly poisonous, as indicated by the crushing bear market which followed the record valuations at the beginning of 2000.

To be clear, valuations have little bearing on the performance of stocks over the short term. However, their ability to predict returns over longer holding periods has been more pronounced. As Buffett stated, “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

Although valuations are currently nowhere near the nosebleed levels of the tech bubble of the late 1990s, they are nonetheless elevated. With a trailing P/E ratio hovering north of 21, the S&P 500’s valuation currently stands in the 84th percentile of all observations going back to 1960 and is at the very least not a ringing endorsement for strong equity market returns.

From TINA To TARA To TIAGA

At any given point in time, stock market valuations must be considered in the context of the yields offered by high quality money market instruments and bonds. The difference between the earnings yield on stocks and interest rates has historically been positively correlated to future market returns.

Earnings Yields Minus Fed Funds Rate vs. 1-Year Real Returns: S&P 500 Index (1960-Present)

When the difference between earnings yields and the Fed Funds rate has stood in the top quintile of its historical range, the real return of the S&P 500 Index over the ensuing 12 months has averaged 8.7% versus only 2.2% following times when it has stood in the bottom quintile.

Until the Fed began to aggressively raise rates in early 2022, TINA (there is no alternative) was an oft-cited reason for overweighting stocks within portfolios. Yields on bank deposits and high-quality bonds yielded little to nothing, thereby spurring investors to reach out the risk curve and increase their equity allocations.

As the Fed continued to raise rates, increasingly higher yields made money markets and bonds look at least somewhat attractive for the first time in years, thereby causing market psychology to shift from TINA to TARA (there are reasonable alternatives). Continue Reading…

Long-term Financial Concerns when moving to a New Region

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Image Source: Unsplash

By Beau Peters

Special to Financial Independence Hub

There are many reasons that people may move to a new state or province, including job opportunities, a change of pace, or wanting to be closer to family. However, one of the major factors in relocating is that where they currently live is more expensive than where they could be.

It’s easy to live in the now and make a drastic change because you believe the grass is greener on the other side, but you must also prepare for the future, and be aware of how your finances could be impacted when you move across state lines. Here are a few long-term financial implications you’ll want to keep in mind before you go.

Cost of Living

Some people move to another state because they like the weather or have friends they want to be closer to, but they’re shocked when they realize that the price of living is exponentially higher than the place they left. Some states have higher prices for the things we buy most, and the costs will likely stay that way for the foreseeable future.

We’re not just talking about the price of milk or groceries either. Costs can vary for many products and services, including healthcare, utilities, gasoline, etc. Before you relocated, research how the costs will affect you personally. You may want to reconsider if you know you’ll have a long commute to work and discover that you’d be paying 50 cents more per gallon of gas. Search online for a cost comparison calculator, which you can use to research the potential costs and make an educated decision.

Sometimes you must move for non-negotiable reasons, such as job opportunities or to be closer to family. If that’s the case and you know that the new state will be more expensive, then you may need to make some adjustments now to reduce costs — especially if you’re moving with young children. Though the actual process of moving with young kids can be difficult, there are ways to mitigate those challenges before, during, and after the move. Mapping out the route you plan to take ahead of time and arranging for childcare the day of the move are both ways to reduce stress during your relocation.

However, beyond the move itself, you have to be prepared for higher costs while raising your children, which may mean dealing with more expensive childcare, healthcare, and school expenses for years to come. These expenses shouldn’t necessarily prevent you from moving, but you should take them into account to ensure you’re making the right decision for your family and finances.

Taxes will be Different

Many people get excited because they hear that the cost of living is less in another state, but they often forget how taxes come into play.

One talking point that gets a lot of folks fired up is when a state doesn’t have an income tax. That’s the case in nine U.S. states, including Florida, Nevada, and Washington. However, you may not save as much money as expected because the states need to make that money up somehow. They often do so by charging more for sales, property, and estate taxes. If you buy a home, the property taxes can be a significant shock every year, so do your research. Continue Reading…

Vanguard Home Bias study says Canadians should raise global stock exposure to 70%

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Vanguard Canada has released an interesting study on home country bias around the world, and makes the familiar case that most Canadian investors are woefully overweight Canadian equities and underweight the rest of the world. You can find the full report (PDF), by clicking here.

The report is written by Bilal Hasanjee, CFA®, MBA, MSc Finance, Senior Investment Strategist for Vanguard Investments Canada. He points out that Canadian stocks account for only 3.4% of the total global stock market as of June 30, 2022, but as the chart to the left shows, the average Canadian investor is more than 50% in domestic (Canadian) equities. That’s a whopping overweight position of 15 times!

“There are good reasons to have some overweight to Canada for domestic investors, including future return differentials, preference for the familiar, favourable tax considerations, the need to hedge domestic liabilities and currency risk,” writes Hasanjee, “However, Vanguard believes the optimal asset allocation for Canadian investors is 30% vs 70% allocation to Canadian versus international equities, based on our research …”

In other words, it’s okay to be overweight Canada by a factor of nine (30% versus 3.4) but most of us still need to boost our foreign content by roughly 50%: from 47.8% to 70%.

Home Country bias is hardly unique to Canada

Home country bias is hardly unique to Canada, the report says: it’s certainly the case in the United States and many developed countries, as Figure 2 demonstrates:

Americans are also overweight their home market —  the United States — but they can get away with it, as more than half the global market capitalization is in American stocks, plus many of those are blue-chip corporations that have the world as their market. If anything, Interestingly you can see from the above that Australia, which is similar to the Canadian stock market in being focused mostly on energy/resources and financials, suffers even more than Canada from home country bias. Continue Reading…