Hello Everyone! These blogs are meant to inspire financial awareness from an economic, business, individual and behavioral sense. I hope you enjoy!
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I am confident many people have watched the show Shark Tank where a couple of individuals go into a room and pitch their business idea to several angel investors. I find it so fascinating that through a fifteen to thirty-minute pitch, business owners can bring an entirely new set of lifeblood and capital into the business. As an investor and a business owner, there are countless benefits of going this route, but often it can be extremely challenging to connect the Angel Investors with the Business owners and vice versa. So, who fills this gap? How can I get optimal returns on business, increase my risk and reward instead of waiting for an initial public offering half a decade away? Why do I need to be an accredited investor to take advantage of opportunities (Makeover $200,000 per year, or have a net worth of $1,000,000) when I believe in the mission, vision and have assessed the financials as I would with any other investment? I want to capture the upside financially, but also support ambitious and thoughtful entrepreneurs!
I remember a few years back there was this craze of the crowdfunding platform GoFundMe. We all are familiar with the concept where essentially anybody can create a campaign and raise funds for a given cause. Traditionally, it would be very hard to reach fundraising goals, and if the goals were hit, thousands of dollars of administrative and advertising spend would have had to be blown through. With crowdfunding, millions of people can be reached to help support a given cause. Crowdfunding has now hit the investing space and the opportunities and excitement behind it are endless.
Let us first discuss some of the primary risks of equity crowdfunding, afterwards we will discuss some of the major benefits of equity crowdfunding. When we buy shares of any major company such as Twitter, Verizon, Facebook, or Apple we can see a return or loss quickly. The brokerage companies (Fidelity, Schwab, Robinhood) will give you the updated price in near real-time. This is great because one can take a capital gain or sell a loss relatively quickly if they met their investment objective or wanted to protect themselves from the downside. This is not the case in equity crowdfunding. It can take several years to see a return (if any) with these types of investments, and one’s shares may not even increase in value. Additionally, if you did find a buyer, it would be harder to sell these respective securities due to the price being stagnant. This tends to steer many investors away, as we often live in a culture of instant gratification and reward. The shares are illiquid and there is not a well-known secondary market, which means you cannot sell until it makes it on a public exchange (if it ever does).
For large established blue-chip companies (AT&T or BP), we tend to receive payment (dividends) for holding the company. This is seldom when investing in startups, primarily because of the profit they do make, they are focused purely on reinvesting in the growth of the business. The reason the blue-chip companies can pay fantastic dividends is that they are established players that are not as focused on growth anymore, rather they are focused on value. The opposite is true for startup investing, everything must be piled back into the business so the company can see optimal growth, and not just please the shareholders. Also, to reduce risk in these investments, invest in several startups as not all may make it to market. Lastly, as we see with larger companies alike, share dilution is a large risk of investing in startups. These companies are trying to raise as much capital as possible to hit business goals and invest in projects. When the company initiates more shares, your percentage holding is reduced. When investing, try your best to make sure clauses protect you against this in their financial filings.
Now that I went over the potential risks, there are so many fantastic benefits of equity crowdfunding. First and foremost, you are supporting entrepreneurs that have spent countless hours, made tremendous sacrifices to make their products, services, and dreams to market.
This is so rewarding because you saw an opportunity when a large bank or financial institution did not. You gave the opportunity a chance when nobody else would. It is rewarding from both a support and seeing them grow standpoint, but also if they do make it to public market you will likely see well above 20% returns. This is the risk-reward that you have earned for tying up your money and taking a chance on somebody. Over Sunday afternoon football, or at a bar you always hear one of your friends saying, “oh I should have invested in Apple or Tesla at pre-IPO I would be so wealthy”. Well, now you can invest in companies pre-IPO so missed opportunities are a thing of the past.
There are many perks that the companies will provide you when it comes to equity crowdfunding, but certain governments will even provide one with tax incentives to offset the risk of early-stage investing. It is something that governments can and should incentivize as it encourages job growth, competitive products, and filling product/service gaps in our market.
Overall, I strongly urge everyone to put at least a few hundred dollars into a startup that they believe in. The risks outweigh the rewards when you look at it from an entrepreneurial standpoint. While there may be some owners that don’t grow the business in the best manner, there are countless entrepreneurs out there that want to bring their vision to the world and they cannot do it without you or me. I urge everyone to learn about the benefits and risks of equity crowdfunding and support entrepreneurship.
Nothing stated in this article is a recommendation from Forehand Financial to buy or sell a particular security or asset class. You should wisely consider your tolerance for risk, time horizon, and financial goals before making an investment. With investing, you run the risk of losing money, always read an investment prospectus and make an informed decision before allocating capital to a particular investment.
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In today’s day and age, it is all too common to not look at things through an objective lens. Whether there is something in the news, a personal experience, or a statement that a friend makes, sometimes this information comes to us and we look at it as if it is a statement of fact.
Do not be fooled…
Around six months ago I was speaking to a friend about his experiences investing in the stock market. Immediately, his guard went up and he started making comments such as “the markets are too risky” or “most people can lose money in the stock market”. He made these comments with conviction and I could tell by the look in his eyes that changing his viewpoint of this would be next to impossible even if returns fell directly in his lap.
I went on to question his convictions and it was very interesting to hear his viewpoint. Before the 2008 financial crisis hit, my friend invested heavily in the stock market. He invested near the top and didn’t have the experience of dealing with a stock market recession before. Nevertheless, the market crashed and several of his investments went either bankrupt or he sold at a fraction of what he paid for them. He lost most of his money because he did not manage his exposure, risk, and portfolio correctly.
He experienced the worst the market has to offer, and he lost nearly 55% of the money he put into it. Something damaging that came from this was he missed out on quintupling his net worth over the past decade. While he was playing it safe by being having cash underneath his mattress, inflation was devaluing his net worth and furthermore, he lost out on a life-changing decade bull market. The thing is this is not the most dangerous aspect.
A very dangerous thing in the markets is having a negative mindset based on one's personal biases.
This personal bias is equivalent to a disease of the mind. The biased person can’t accept the reality of the situation. Furthermore, it is now, unfortunately, a way of life that will take a long time to overcome due to the traumatic experiences of losing more than half of what one toiled for so dutifully. Personal biases are all around us and it is crucial as investors that we remain completely objective with our focus. Please see the list below in which I often see individual investors make personal biases on. These biases happen all the time, and most people get burned by one of these to some extent during their investing years.
Hype and talk can lead to the fear of missing out on the market. The above examples handicap many investors every year and they would have been in good shape if they did just one thing. Performed objective fundamental and technical analysis. But how fun is this? It is not strictly about fun, as a photographer calibrates a shot through a zoom lens, you need to have the same level of clarity of where you are putting your money. Never let a personal bias sway you, there are hundreds of biases that one may have on any given day, but to act on these would be foolish. To identify if it is a personal bias simply triangulate with people who are willing to disagree with others to see if they agree or not. If it is a personal bias, often, everyone will not agree.
My friend will be missing out on a lifetime worth of compounding and growing, but I share this with you because I want to show how destructive a personal bias can be from a return’s standpoint. From this example, the personal bias cost him approximately $45,000 over the course of 10 years. This is a significant sum of money, that has been simply wasted. I urge you all to consider, what personal biases do you make on a daily basis in your financial life that are holding you back?
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From an early age, I have always wondered how much money one is given from the start of ones life may negatively impact an individuals work ethic and ability to strive for further opportunities. Many of us know people who were given large trust funds, or large sums of money, and through the years their finances take a downward sloping curve. The best years of their lives are behind them, and it is a situation of maintaining or enjoying what has been bestowed upon them. An opposite situation I have found is when parents have very little throughout their lives and have not saved up for their child’s college education, or to provide them a strong start to put their life on the best trajectory possible. This individual needs to work hard, take on additional work opportunities, and grind every day to get a shot at the American dream. Throughout this blog I am going to address the impacts on performance money brings to kids from an early age, and how it has the potential to position the child on a trajectory of success, failure, or somewhere in between.
Mismanagement of finances has occurred since the dawn of time. You do not have to look far to see that most lottery winners blow through most of their winnings within a few years. Easy come easy go. In the finance community it is widely known that "a fool and his money are soon parted." There was no effort and challenges to overcome to earn that money, and because of this, it is not challenging to spend this money.
Some wealth is generational, and some is newly created. An example I am about to bring up has to do with the stewardship of money with a particular group of people, but lessons can be learned from this no matter who you are. Native Americans in the United States have been subject to many opportunity disadvantages over the past hundred years. A particular cash cow for Native Americans on reservations is casinos (Native Americans can run casinos on land in the U.S, and these are extremely profitable). An example I saw a few weeks ago was regarding a Native American tribe in Wisconsin that gives something called “18 Money”. This “18 Money” or “Big Money” is given once the individual turns 18 years old and graduates high school, and from the example, I saw it was around a $250,000 lump sum of cash.
This money is notorious for being a blessing and a curse because poor stewardship of it leads to many horrible habits that cannot be undone. When many of these fresh high-school graduates who just received the 18 money were asked what they would do with it, many of them said they would buy a Maserati, buy their parents expensive gifts, or spend it on drugs and alcohol. What needs to be addressed here is the behavior aspect. Often, these individuals were living so close to the edge for the first 17 years of their life. They never had money or the opportunity to get money, but they also did not have experience in the management of this either. Many of the native American reservations have taken a step back to assess this situation and have been giving better alternatives to this money. Through education programs/grants, to monthly dividend payouts, better courses of action are being taken to address this situation. Personally, if I ran into $250,000 in cash at the age of 18, with confidence I would have tried to be wise with it, but I may have caved into negative outside influences and become a poor steward because of my lack of education at the time.
Running into big money without working for it does not always yield bad results. I bring this up frequently, and politics aside, but I think George W. Bush and Jeb Bush have done pretty well for themselves given how much money they grew up with. Additionally, Richard Branson grew up with some money, but he still has done very well for himself. While we can look at specific examples, and do our best to explain why certain people turn money/wealth into a positive scenario and others frivolously spend it away, the bottom line comes from the strength of the character to draw strong boundaries. Being able to say no frequently and have the right people in one's corner is so important when trying to avoid being just another statistic. Furthermore, they need to have that innate drive to be successful and begin with the end in mind, rather than focusing on small things such as material objects or the next big party. These things are fleeting and because they give the dopamine rush and are so easily attained, they are the very things that leave those individuals empty-handed down the road.
I see countless individuals playing and hoping to win the lottery in today’s day and age. While this may not sound as sexy, instead try and focus on learning the best stewardship of finances. Learn about money management, listen to podcasts of Dave Ramsey, Chris Hogan, or KPP Financial. You can also read books, subscribe to publications or attend seminars to learn from the minds of the greats.
By nature, we tend to do what is fun and easy, and sometimes what is fun and easy is not what is best for our monetary goals. What will give you profound results, in the long run, is sitting down and assessing previous, current, and projected state. Looking from before the current state, what worked and what did not? Apply what worked on the projected state and seek help from others who are strong role models to fill in any gaps. Whether you inherited a large trust fund, ran into 18 money, or started with nothing remember in the end the people who get far financially have a strong financial education and have mentors that have mastered the game.
Thanks, everyone for joining me in today’s blog. Please feel free to comment and share if you enjoyed the content!
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Economic downturns affect us more than just the financial aspect. It is known that we are living in uncertain times, and when this happens it can feel paralyzing to the point of not being able to think through things thoroughly. I am not going to lie, over the past couple of months I have hit some dark times, but I have overcome this by connecting with my mentors and talking with my friends and family. Furthermore, I have been able to go on some hikes, do some yoga, and read positive articles which has been a key to getting a level head. I bring all of this up because when you are investing and trying to take advantage of downturns, one needs to have a level head and be in rational thought. The two things that burn most people in a recession are greed and fear. I encourage everyone reading this today to focus on looking within and seeing if they have tapped into one of these two emotions in the past couple of months and if you have, take a big step back and adjust course.
Once when this big aspect has been taken care of, when investing be sure to do your proper due diligence on things that you are investing in. Now, more than ever we are seeing major discounts and big-name investments and many people may have the fear of missing out on the potential upside that these investments can bring. BE CAUTIOUS, TREAD CAREFULLY. Many of these airliners, cruise ships, or service industry businesses are trading 80% less than they normally do, but before you pile in thinking you are buying at a bargain price understand how all the pieces work together. This is not to sound pessimistic but try your best to look at the worst-case scenario of a certain asset class or market. For example, how will this virus alter the industries and the way we live going forward? Are cruises an essential business, and will they be able to stay afloat with such large debt levels? Will cruises get a U.S. bailout (likely not because they are headquartered in Central America)? Make sure to know all the potential downsides, and not to catch a falling knife.
Look up, be happy, because there is a large silver lining to all of this. We are investing in our independence, and likely will diversify our supply chain away from China. This has all accelerated the investment of technology that makes us more interconnected and has developed our communication infrastructure. Look for investments that are deeply discounted and are likely to come out of all of this being the new norm. Avoid industries that people can easily live without (we do not even want many of these stores to be honest). The retail apocalypse has been happening for years, and in this downturn, many companies will not be able to make it through the other side due to antiquated business models. A perfect example of this is Gamestop, JC Penny, Macy’s, Sears, Circuit City, Best Buy, or AMC. Do we need to purchase video games in a store anymore when you can download or order on Amazon/E-Bay? I am surprised they have survived this long, but I see them becoming the next Blockbuster. While not convenient if it does not fit, I think many clothing stores will transition to the online model over the next couple of decades when the ease of return becomes more prevalent. TV’s, speakers, and cameras in the future will primarily be purchased online, so I think Circuit City or Best Buy need to evolve their model to remain competitive in the marketplace. Lastly, as much as I love movie theaters, they are expensive to operate, and many studios are releasing directly to subscription services. They need to evolve and change their model, as this is all proof that entertainment consumption habits change with ease. All these above are examples of what to not invest in (given their current trajectory).
I write this article not as a bear, but as someone who understands many companies will go under, and may not survive the wreckage. Many company’s that have been running poor balance sheets and haven’t evolved with the times should go bankrupt without a bailout. In the business world, this is just how it is, and while many people’s jobs rely on the income from these bankrupt companies, other more meaningful opportunities will arise for them. Why is it that the average tenure for companies on the S&P 500 is around 20 years? Over a couple of decades, companies get comfortable and get delisted as times changes, consumer preferences change, and industries evolve. Be careful where you invest, as we are living in a dynamic time of rapid change and ever-evolving consumer preferences.
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Now more than ever I know people trying to get involved in the stock market to take advantage of opportunities that didn’t exist a matter of months ago. Every day when there is massive volatility in the markets, I get texts and calls from my friends asking what the next move is, little do they know I can’t predict the future (even though I may try sometimes). There are many patterns in the market, and I think some should be capitalized on and some are just an anomaly. In the past week, we have seen all the stocks that were beaten down do well, and all the recession/pandemic stocks attempt to claw at higher levels with trivial success. We cannot predict the market, and the news is changing so rapidly sometimes it is best to just keep a level head and not make a trade at all. This is hard to tell my listeners because we all love action and making moves that can improve our life. But, from my experience, sometimes the best action is no action and here is why.
Depending on what type of trader you are impacts the message of this blog. From a long-term perspective, it is always best to invest and dollar cost average into the market. From a short-term perspective, best of luck. With volatility that is impacted based on scientific findings, I think it is best to not make a trade at all. When an announcement is made in the left field, while you are trading short term and you didn’t get the news in time you can get burned. It all falls into risk/reward, and I think the waters are ripe right now if you want to be risky, but this article is intended for those who carry a low, semi moderate, moderate risk tolerance. You can see a 20-40% swing in a matter of days, and if you need access to that capital in the near term these short term plays should not be made. Just as we see very aggressive swings down, the bounce back up is likely to occur as quickly.
Note from a Bankrate Article, if you have your 6 months fully-funded emergency fund, you are doing better than 71% of U.S. citizens.
I’ve been hearing the craziest things people have been doing to free up cash to invest in the market, and they are doing this because they think we have hit the bottom and this is a missed opportunity if not capitalized on. For cash, people have been taking out personal loans, home equity lines of credit or even in some cases using cash advances on a credit card to invest. If you must go through any of these measures to attain capital, you shouldn’t be investing in the first place unless you know exactly what you are doing. Although likely, most of these people don’t know what they are doing because they haven’t built a sum of wealth from the market, to begin with, hence their minimal net worth and need for a loan.
I will never forget this lesson in which sometimes the best trade is being no trade, and I learned it a few years ago from Timothy Sykes the famous day trader known for his large capitalization's in a matter of hours. The lesson holds the test of time, and I think it is something more of us should consider when we are sitting on a pile of cash trying to capitalize on these fantasy-like market swings. Dave Ramsey famously says, give every dollar a name, and this name is a structured plan. Not businesses in which one is not familiar through inexperience or having the need to fulfill romantic investment desires. The headlines are bright, the percentage gains keep one in awe, the fear of missing out is incredible now. It is easy to look and see what we should have done, the opportunities that we missed cost us a fortune. Often, these lost opportunities torment us. We all need to remember that hindsight is crystal clear, and to take lessons from all that we are going through while keeping a level headed and diversified investment plan in the coming months.
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This screen capture shows the top 11 sectors year to date from Fidelity Investments. When investing, I am sure we all have a favorite sector we lean towards. For some, it is the information technology industry where rapid gains and losses are commonplace, whereas other people enjoy more stability with a higher dividend and often Consumer Staples or utility companies.
Today I am addressing the importance of having an allocation to some extent, to each of these industries in your portfolios, why one should have some exposure to each area and optimal ways of allocating one’s portfolio. Time and time again, I hear of people investing in their favorite companies and putting a lot on the line because of these biases. When people do this, they are trading with an emotional bias rather than logic and proven principles. First, I am going to run by a situation we just encountered in the past month, and why it is crucial to diversify across industries.
I have been invested in the Oil & Gas industry (-55.37%) or the Airline industry (-41.38%) the past couple of months, it has been beyond painful to watch. Due to the circumstances around our country right now, travel has severely been reduced and as a result, it is impacting airliner's bottom lines and profitability. Furthermore, I believe they may have more headwinds to face in the coming months because even if the situation is under control here in the U.S, I doubt international routes will open up significantly over the next year. These losses are sobering, and if you were overweight in these industries now is tough, but it is an important learning experience going forward on the criticality of diversification in one's portfolio.
Just by looking at this graph an individual might think, I am only going to invest in the Consumer Staples and Information technology going forward, because during a crisis they aren’t affected as significantly. While these sectors do hold up well when times are hard, hindsight is 2020, one could have never known this epidemic was going to happen last year. Furthermore, all sectors move up and down during periods of time. Sometimes financials will be up, and consumer staples will be down, likewise, sometimes Real Estate and Healthcare may both be up, significantly. While certain sectors and industries tend to move concurrently, a balance should be struck to the appropriate allocation percentages per each area.
My strong suggestion would be to just get started allocating across sectors. Simply start doing this, and I guarantee many people reading this are only allocated across ¾ sectors and they may not even know it. If you are invested in an index or mutual fund, you likely have exposure across all the sectors, but the investments just may not be intentional. Knowing there are 11 major sectors, simply allocate 9-10% of your portfolio to each sector.
When you get more advanced with your investments then try and look at how one sector influences another. It is certainly more of an art than a science but think about it in elementary terms. If people stop traveling through the airline and auto industry, what other sector would be directly impacted? The energy sector would be hit hard. Knowing this, maybe it would be best to allocate a smaller percentage of your portfolio to both of these sectors because they go hand in hand. If you are less risky but enjoy stable growth then put a larger allocation to Consumer Staples and utilities. Note, oftentimes returns may be smaller in these areas, and growth may take a while, but you will have a stable and relatively predictable stream.
Being a successful investor is all about reducing unnecessary risks in your portfolio, and it is extremely difficult to reduce risks if you aren’t allocating across sectors and industries optimally. While finding your optimal allocation may take time, getting in the practice of spreading your investments across sectors will help alleviate one, especially in a time like now. In this crazy world, we never know what may happen. A war may break out, an oil spill may happen, natural disasters may damage a countries livelihood, or a virus-like we are seeing now may sweep the world. Being diversified across several sectors will provide one with the assurance they need that all of their eggs aren’t in one basket.
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Now more than ever, we are living in doubtful times due to things that are beyond our scope of control. Our portfolios are being stress-tested on the allocations we made when times were great. It has always been said that the bulls take the stairs, and the bears take the elevator, and this is certainly the truth this week with the largest point drop since the 2008 financial crisis. Unless you bought the VIX, inverse index funds, are selling put options, have picked some very lucky names or are shorting many of these big droppers, you have likely lost money to some extent in the past several weeks. In this blog, I am going to address opportunities for safety and ways to remain resilient in these turbulent times.
Investors fear the worst. One of the reasons the market has been dropping so drastically over the past couple of weeks is because the virus outbreak is difficult to quantify. Will it affect 100,000 citizens or 50 million citizens? Fear often drives the market, and investors commonly react emotionally. It’s hard to tell how many people it will impact in the U.S and the financial repercussions industry over the industry. Travel stocks will be hit very hard such as airlines, hotel chains, casinos, cruise ships, and restaurants. Since we don’t know the long-term implications of the pandemic, it would be very risky, but potentially profitable to pick up stocks in these industries. Note, that purchasing in these industries long term would likely be a great play due to healthy valuations and p/e ratios, but don’t expect the volatility in these areas to reduce anytime soon. Companies that may fare better are ones such as consumer staples, IT, Healthcare companies, sin industries, and discount retailers. Think of products that people need to buy while everything is crumbling down to the ground. On the other hand, do people need that vacation to the Caribbean or brand new car?
Flee to safety. While yields in government bonds are near all-time lows, interest rates have dropped so far, bonds and high yield savings are the safer places to be at this point. Additionally, commodities such as gold, and silver will likely stand the test of time as investors flee falling equities. Cash-rich businesses, that have little debt are where you want to be right now. Always look for a company with a current ratio above 1, which ensures they can pay current liabilities. Look for long term debt ratios below 40%, and optimally 20%. In these situations, the company (borrower) isn’t over leveraged and can service all debts adequately when the creditor comes knocking. In my opinion, the best place to be when the market faces strong headwinds is in stocks that pay a healthy dividend. Examples of these are oil stocks and certain telecom stocks. The reason to invest in dividend-paying stocks is you are guaranteeing cash-flows every year by doing very little. Even if the stock drops a little, you are guaranteed that dividend yield. I try to avoid stocks that don’t pay me a dividend, and specifically, I aim for dividend yields above 5% and payout ratios below 70%.
Look at this extreme volatility as an opportunity. Remain cash-heavy and be sure to dollar cost average into areas where you see fit. Re-balance your portfolio weekly and don’t be afraid to add to your positions or cut your losses where you see an opportunity or know you made a bad decision. Give every single dollar a name and be sure not to panic as the market sells off. Look at 3-12% losses as discounts, rather than losses. The market is swinging heavily right now due to fear and speculation. With so many large events being canceled, travel restrictions and production shortages the economic activity is slowing significantly, and it is impacting almost every sector. To what extent? How much of this is fear-based? From the point in my second paragraph above, I mentioned investors fear the worst. To come out of this on top don’t try day trading, shorting the market or buying into the fear. While some may disagree, I see something else in the works. I see a red herring (corona-virus), being exasperated by all media outlets for an agenda. I will let you draw your conclusions here since we all have an opinion. Nevertheless, while I never saw the 11-year bull market coming to an end as it is now, and while I am unsure if it will turn into a recession. It is important to remain level headed and remains cautiously optimistic. To do so, save cash, pay off non-income generating debt, live below your means, diversify, dollar cost average, buy undervalued stocks and don’t react emotionally.
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It's very interesting to think about, how systems that we impose on ourselves can incentivize one to spend negatively. Why would we create a system that encourages one to go deeper into debt just so one could get a higher score? It’s the same thing as encouraging someone with an overeating disorder to go to all you can eat buffets every night of the week and giving them coupons in the process. Only one side wins. The systems that we create curbs customer behavior which can help or hurt individuals significantly in their lives. Therefore it is so important for who we decide the game makers to be.
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When you were young have you ever heard your parents or friends’ parents argue over money? In today’s day and age finances alone are the cause of more than 20% of divorces in the United States. It is of great importance to understand tactics and approaches one could take to avoid becoming just another statistic. We all have our desires and personal goals when it comes to things we want and places we want to go, but I think it is important that we first understand how to build a strong relationship with our partner when it comes to this highly sensitive subject. Before diving into the details on this, lets look at what we can do proactively to communicate in a loving and professional manner.
If you have a shared account planning with your partner for the month ahead is the most important thing that must happen to be able to win at a relational level with money. Every Saturday or Sunday before the month begins sit down with your partner and analyze what you want to do that month, whether you are expecting an increase/decrease in pay or if there is an expense on something that you truly value coming up. This heightened level of communication allows one to talk about things that are both exciting on the horizon, but also allows you to have the conversation regarding what can and can’t be done in that given month. If you really want to purchase an expensive watch or pair of sunglasses, this needs to be addressed early on. It isn’t all take and no give, in fact, you should be trying to give more and show support for your partner. Note also, that it doesn’t need to be a 50/50 split all of the time, there is some flexibility and know in the long run it will all even out if everything is communicated early on and up front.
The next thing that you must do to be winning money and your partner is to provide them education and guidance on the topics of money. Show them proven statistics on what it looks like to win with money. I know it is called “Powdered Butt Syndrome”, when a child tries to give their parent advice on something(money), and they don’t listen (even if this child is 28 years old and very financially literate). It happens simply because they brought up their child from a young age, and there isn’t as much credibility to believe the message their child says. I believe this holds a degree of truth also with our partners and much of what we say can be ignored or laughed off. Sometimes, people don’t want to listen to your words directly so the best thing you can do is to provide knowledge indirectly, so they can come to the correct decision on their own. Provide them books, Youtube videos, blogs and other resources that can help them come to certain realizations on their own. If they aren’t open to new ideas, suggestions or lines of thoughts try and analyze whether these are qualities you want in your partner.
Something very important, that I don’t think is considered enough is to be very careful who you select as your partner. This comes down to values, spending habits, work ethic and preconceptions about money. If there is a large disparity in income with your partner, I certainly recommend having a separate saving and investment account! You have worked very hard on your education and career, and if the disparity in income is too far off and it eventually breaks off you can be out a significant amount of money. Understand the statistics but remain open and transparent about the situation. If there is any lack of trust, try to keep a separate savings and investment account, but understand in the long run you want full trust and transparency with your partner. It’s that trust and transparency where you don’t have to worry and bring up tough conversations on a routine basis. You don’t want something as silly as paper with old men printed on it to be a reason things come to an end. It is simply a game and I encourage you to make the topic lighthearted and enjoyable, but to stick to the plan as a test of commitment to each other and your future.
In todays image chasing and income-oriented culture, it is no surprise that money fights lead to negative stress, confrontation and at worst break ups. To combat this really drive to have a solid plan with your partner. Provide them with well thought out education and remain objective so they can make decisions on their own. Really strive to make transparency a number one priority. This way, when you are with your partner you can commit to them 120% without a worry in the world when it comes to money. You can focus on what really matters, love.
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How many times throughout your life have you set new years resolutions to improve your life and circumstances, and by the third week into January your new gym membership is a relic of the past and your diet consists of fast food and regret? A few years back I found myself making little traction on my resolutions because of the “Why” didn’t strike a deep enough chord and I slowly drifted away from my goals. It is well known that one of the most common resolutions every year are financially related. Per WalletHub, approximately 40% of people plan to make a financial resolution for 2020 and I strongly encourage everyone to participate. Furthermore, I have researched that up to 80% of resolutions in general fail by early spring. Wow! Now for me, I have stopped calling them resolutions altogether, and I simply put them in my goal notebook. When I called them resolutions, they would never be completed, when it is another goal it is framed in your mind differently and almost is always accomplished timely. 2020 is going to be an exceptional year and the start to a new decade. Throughout this article I am going to discuss a couple of financial resolutions that you should consider starting the new year strong!
If you have cut expenses so much and you are still living like a college student and going underwater on your bills something to consider in this new decade would be to be transitioning to a new career. If you are lucky, most companies will only give you a 3-7% raise year over year for merit. This is a slow way to build wealth (and don’t forget about our inflation rate of 1.7% year over year). Often if you switch careers you can make anywhere between 15-50% more than you are in your current role. This solves the income piece of your problem, and with more income you will have more money to invest, save, give and spend. Something important to note on this is to not let your lifestyle creep just because you have an increased income. This will be hard to hold off, because you have spent so many years living one way and all the sudden once you get more you want to spend it. Treat yourself a little more but use this as an opportunity to become more wealthy. Most people’s job is their largest source of income and if they are spending it, they just are like a hamster in a hamster wheel (but this time, the hamster wheel is decked out in gold rather than steel) but they are still going nowhere.
Kill two birds with one stone and focus on the cheaper and healthier option at the same time. Now it is well known that being unhealthy is more expensive in the long run both directly and indirectly (medical bills, strain on family/relationships, less productive at work, bad diets etc.). By becoming more fit through exercise and nutrition you can instead have a water for lunch instead of a soda. While a soda is relatively inexpensive, water is generally free and is much healthier for you. What I use typically is a flavoring or sometimes I upgrade to seltzer water. You won’t crash mid-day doing this and you won’t be downing acid into your body. Another option you should consider would be going to Costco or Sam’s club and buying large containers of rice, potatoes, meat (freezing it), beans and soups. These foods are relatively healthy, but they are extremely cheap and cost effective if you purchase in bulk. I feel like you can purchase an entire Chinese rice field for $20 and it will last you several months. Planning far in advance, being cognizant of your diet and partaking in daily exercise will put you on a tremendous trajectory for 2020. Your body will thank you; your mind will be clear, and your savings account will have a larger than expected balance.
I can talk for days about what financial resolutions you should get into, but my suggestion to you is to get into setting financial goals. You know whether you are in debt or not, just like you know whether you are reading non-fiction finance books or binging the latest Netflix thriller series in one night. You know whether your credit score is suffering and if you are living paycheck to paycheck. To live a life of financial excellence, you need to prioritize this part of your life. Just like you see someone that is super fit at the gym, it is because they put in an hour to two hours of work into it every day. Start with thirty minutes of gaining financial knowledge every day and by the end of 2020 you will have accomplished many of the financial goals you set for yourself. You wanted change for the better from deep inside and because of this you have set a strong foundation for the years ahead. Start small, aim large and look at your bank account. You will laugh with joy in the future from where you started and where you are now. Let’s go 2020!
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There are countless financial doomsters out there who are always selling fear through the fact that we are facing an impending downturn next year. Sometimes, I find amusement looking at these videos several years later when an economic downturn never actually occurred. I write this article to spread awareness on the fact that we are long in the tooth in this aged bull-market and I want to provide possible triggers that could spark a downturn. I took a poll a few days back and approximately 75% of the voters thought a 2020 recession is going to occur. This post is in response to that. Please note I am not trying to get my audience to go into full panic mode by selling all their equities for cash, doomsday bunkers, precious metals, ammo, and canned food. I want to provide practical insight to the average individual and investor on how to ride out a 2020 recession.
Historically recessions occur about every ten years and the last one we had was in 2008. On March 22nd of 2019 this year we had an inverted yield curve which has predicted many financial crises within one to two years of it happening. Additionally, the FED is pumping more than $100 billion a month into the economy which is essentially propping up asset prices and sustaining growth. The FED additionally has lowered interest rates on 7/31/19 and 9/18/19 to improve consumer spending and borrowing. These are two pillars that help economic growth, so I wonder if the FED did this being at the helm of the ship to avoid unpleasant waters. What caused the 2008 recession is likely not to cause a 2020 recession because many regulations, policies, and lending standards have been stiffened up to ensure borrowers can service their debts adequately. Two primary things that are likely to ignite the long-overdue recession would be slow in trade between the U.S. and China and the 2020 election. Now, many other things may cause a 2020 downturn, but these are two primary unknowns that can jolt the market significantly depending on politics and policy. There is a slow in trade between the U.S. and China since the 25% tariffs on imported goods to the U.S, and I don’t see any benefit for having this in place from a financial perspective since we are essentially reducing our volume of purchases with higher cost goods from China. In concern of the election, investors and companies are likely to demonstrate more restrictions due to certain programs that could negatively impact the economy. This silence is essentially the calm before the storm.
What can individuals do to prepare for an impending recession? Smile, because you are getting a jump-start and are being proactive with your situation! Now is the time to plan and stress tests, not when we are in the midst of the recession. I won't bore anybody with repetitive content but as a reminder please ensure all high-interest debt is paid off and an emergency fund is fully underwritten. If a recession is coming, it’s just like being a farmer preparing for a long drought or famine. You need to prepare by cutting costs and doing what it takes to make it through the long winter. This is a great opportunity to work on a side business, get a promotion by taking on more work or taking a part-time job. I think it would be relatively risky to change employers and industries right now, but if you have low overhead go for it as long as you have discretionary income and an emergency fund. This is the best time to take advantage of all company perks because you don’t know if you will be impacted if layoffs occur (squeeze those benefits dry)!
What can investors do to prepare for a recession? Be prepared and start fortifying now! Something significant is bound to happen soon. S&P growth is expected to grow in 2020, but not as much as in 2019 (same with GDP growth). I remember in February of 2017 when the market dropped more than 15%, I panicked and sold some of my investments. To date, this was my biggest investing mistake and the key lesson to learn is to keep emotions out of investing. When you see the market sliding down 3,4 or even 5% look at it as a sale, not a loss. Can those emotions and think logically, unrealized losses are exactly that. Unrealized. When you add to your position at a time like this, you will obtain a much larger upside, while concurrently dampening any losses. When investing, try to look at historical data to see what investments withheld the 2008 recession (recession-proof high dividend-paying stocks with low payout ratios). Another thing that should be done is to re-balance and further diversify your investment portfolio and in doing so you will reduce risk. Purchase high-quality bonds rated (AAA) and stocks with low debt and high dividends to ensure income. This will help significantly offset volatility. You should be in cash but try not to be over deployed in this area. Try to always be aware of what brings the highest returns. In this case, the highest yielding savings accounts bring about 1.8% APY whereas inflation is about 2% YOY, so you are losing .02% which can be many Starbucks trips every year depending on your account balance. 😊
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Ever since I was a young child I have been in love with cars and I’ll never forget telling my dad when I grow up, I want a yellow Corvette with a NASCAR motor. Today more than ever, like many Americans my passion and love of cars is still strong. It is important to remain resilient and understand that cars depreciate, and for many, these vehicles would be considered a liability. A record number of Americans in the United States have auto loans currently and today's piece is to discuss what this means for the overall state of our economy, how this affects individual's investments and why taking out a loan or leasing a car isn’t necessarily the best option.
It is well known that wages haven’t increased significantly over the past decade, while the prices of many products have increased several times over the same period. Cars specifically have been the weak spot for many Americans and currently, we have over one hundred million Americans with auto loans. What does it say when a country is approaching nearly a third of its population having to make monthly payments to get from point A to point B? Are they trying to leverage debt and take advantage of low-interest rates (average auto loan interest rate stands around 4.2%), or are they squeezed financially to the point where they are unable to pay cash for a car? I think it is a combination of both with more emphasis on Americans being squeezed financially. It is written on the wall right now on why we have a record amount of loans. Unemployment is hovering around the lowest it has been in the past decade; the stock market is currently at an all-time high and the market is simply euphoric with near all-time low-interest rates. People feel comfortable taking these loans because they are the ones on the party bus, it is going fast and these people don’t want to see that good times eventually do taper off.
The average U.S. citizen pays roughly $550 per month for their auto loan as of 2019. If individuals were to simply put this amount plus the initial investment of $5,000 into an S&P 500 index fund over forty years monthly at a rate of return of 8%, they would have $1,880,216 tax-deferred. Do you love your car that much?! Come on everyone! Even if you were to reduce the average monthly payment in half to $225 per month you would still come ahead with $833,365 extra in retirement. This is just something pivotal to consider if you are falling behind on your investments or if you want to live a very nice lifestyle in retirement these are things to consider. Remember, just because the smiling car dealer with remarkable teeth and a comforting personality tells you everyone is doing this, does not mean you need to also. Go against the grain if you want to have a heightened level of freedom and a wonderful life. Short term pleasures? No. Long term results? Yes.
I will discuss leasing in a future article, but essentially leasing a vehicle is being left with nothing at the end of the term. Leasing would be considered the worst rate of return, but it can be argued that it is the most convenient. I will write a future post on leasing versus buying, but anything with a return of 0% should be avoided at all costs! The main problem with financing is that many buyers are then in the cycle of always making payments for the rest of their lives. Once when the five years are up, the car doesn’t have the latest features and the consumer then typically rolls over the residual value into a new and more expensive loan, and the cycle starts again. The next problem is on average, most cars can lose anywhere between 40-70% of value in the first three years. If the hard times hit and one were to lose their job, they would be underwater on their loan and would either default and get the car repossessed or roll it into another higher rate loan. Both are horrible options. How can one break out of the middle or lower class if one is always paying someone else?
Cars are almost a necessity in the modern world, but if you live in an area where you can take public transit or ride your bike take advantage of this! Honestly, riding a bike or a scooter is much more fun anyways 😊. If you must buy a car, it doesn’t have to be new. Plenty of reliable Japanese makes produce reliable cars at a fraction of the cost that can last 250,000 miles +. In summary, we have a record number of individuals in auto loan debt today, it is sacrificing many people’s retirements and therein introduces unneeded risk into people's lives. Avoid the pileup and race out of debt. You AUTO know better! Give me a BRAKE!
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Throughout history, individuals would purchase an investment looking through the fundamental value, return on this investment and whether the products will generate this investment a positive net income for years to come. In the past decade or so, there has been a shift away from strictly looking at the fundamentals of the investment, but how well this company treats the environment and whether there is a long-term sustainability objective. The movie the Lorax is the best wide known allegory (and relatively extreme example) that comes to my mind when looking at how once a beautiful area with lush trees, wildlife and weather is turned into a factory filled, polluted, profit optimizing dystopia. Today I see many real-world company examples that are turning into this, and while they pack handsome dividends, they also aren’t cognizant of our planet which in turn leads to a wasted planet for our children and grandchildren to live on. In this post, I am going to discuss the importance of ESG (Environmental Social and Governance) policies for corporations, voting with our dollars and trying to achieve/balance profit optimization sustainably.
It is preferred by consumers and investors (especially younger investors) that the company they invest in implements a sustainability objective that shows concern for the environment and concrete action being taken to improve our planet while serving the respective market niche profitably. Many large well-known companies such as BP, Apple, McDonald's, and WM issue ESG policies because they interact consistently with our environment, are some of the largest companies on earth and we want the transparency that they are doing good for the planet. Many individuals are skeptical to invest ESG because there is a misconception that if they invest this way, they may be at risk of losing money. Implementing sustainability will generate a dependable customer following. This following will grow substantially through the advent of social media and in turn, the customers will keep purchasing the products sleeping well at night by knowing where they shop and invest helps our planet. Lastly, having an ESG program will create satisfied employees who can stand behind the products/services with confidence which can help make the organization more impactful ensuring that the strong performance goals are met.
As individuals, we need to question why invest and allocate our dollars for a company that doesn’t treat our one earth with respect? These ESG statements allow individuals and investors to hold the company accountable when they don’t meet the objectives. Voting with our dollars demands change, companies are always inclined to make a profit and if individuals aren’t purchasing the products/services because they lack the correct initiatives in place. The companies will end up changing but remember nothing will change without concrete action on the investors/customer's behalf. Companies must create this program, but it must be for the right reasons and not to just check a box. If they are doing it just because competitors are following this path, the program won’t be as successful and there won’t be as much strength and follow through on the execution of the program.
This can be argued, but ESG policies at first can be an initial cost center and bottom line headache in the beginning stages. Money needs to be invested in the program, with no concrete return in the beginning. Numerous things need to occur at the inception of an ESG program and this increases the research and development budget, the potential switching cost to new suppliers and determining how to handle the waste of the current and future products effectively. This is a hassle at first, but the companies that demonstrate environmentally-friendly policies will attract capital from individuals who hold the same values. Additionally, larger institutions don’t necessarily want to be associated with companies that contribute negatively to the environment. The association with these companies leads to bad publicity and often negative shareholder value.
In the future, we are headed to a time where capital will be directed toward the fundamental value of a company, along with where the company stands in terms of a positive impact on the earth. It should be a relatively equal split. Every company can profit, but not every company can profit sustainably. The latter option will have the opportunity to make the world a better place while also making the investors returns. There has been no strong research yet that supports investing sustainability leads to more returns or fewer returns. Where the company allocates its cash will help determine which group of investors invest, the long term survival of the business and the potential encouraging impact the business has for the future of the planet.
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At a young age, my parents got me involved in the sport of tennis alongside my sisters. I have always enjoyed this sport due to its competitive nature (and I don’t have the body of a linebacker). Over the years, I progressed through my journey in both high school and was a coach briefly at university. While other things have come and gone in my life, tennis has always been a constant. Today I am here to tell you everything that tennis has taught me about business. If tennis doesn’t strike a chord with one, I believe we should all look at some physical outlet where we can be healthy, mingle with others and compete!
Networking and developing relationships are the most important things that tennis has taught me. This year alone, I have formed roughly two dozen contacts of finance professionals, real estate financiers, medical professionals, and even some Uber drivers. There will be people you want to connect and some you may be indifferent about. Nevertheless, when competing and having fun on the court, you don’t care what the person does for a living per se, you just want to play. Over the weeks and hours playing with these individuals, you want to start to get to know them and their stories. Maybe you want to hit with them on the weekend or evenings here and there. Developing relationships is something that is life or death in the business world and through tennis, I find the experience seamless.
Communication is necessary and vital. I have failed so many times communicating improperly in tennis. As many of you know I am a Toastmaster and public speaking communication is a far cry from on the spot communication in doubles matches. I’ve found the sport easy if before you play with your partner you communicate rotation styles and you always call out your shots. People in the business world need the same communication. They don’t know what they can and can’t touch, how to do something or escalate something appropriately. Communication is the foundation of anything in life, and once when this is mastered intensify this skill.
This one is hard to bring up, but humility is a quality that I wear almost like a badge of honor now. On the courts, there will always be someone better, more accurate, more reliable at positioning and even may have better endurance than one. I have lost important matches with several dozen people watching and having this sense of humility is important because it allows one to reflect and own the mistakes that were made so improvements can be made going forward. Transitioning to the business world, outside of our scope all the time projects fail, regulatory scrutiny increases, or a new competitor enters the arena and strikes a key contract with a crucial supplier. Most of the time, outside and competitive factors influence business and I think it is important to have a sense of humility and remain aware of this because too much pride without staying true to the facts at hand will eventually derail business ventures. I can say with confidence it has derailed several important matches I have played.
In tennis, it is of great importance that individuals play to their strengths! If you have a winning forehand, don’t try to score a winning backhand, until this skill is up to par. Focusing on the strength doesn’t mean ignoring weaknesses, it just means taking advantage of these strengths as much as possible to score as many points as possible, or to tear down your opponent. In business, I see this all the time. Companies will try to enter a new market segment to simply increase profitability. They end up failing critically! Google +, for example, was a social networking site that failed dramatically because it didn’t fit well into the Google ecosystem and wasn’t able to grab the network effects of other social media sites such as FB or Twitter. In business and tennis playing to one's strengths and sharpening this saw is what will lead one to victory.
Lastly, having fun is the most important thing in tennis and anything one does. Go out and play to have fun. If you don’t like the sport, and you are just trying to win it will feel very transactional and will prevent one from achieving greatness. On the same coin, the most successful companies I have seen seem to really enjoy what they are doing and are always looking to improve. Controversial, but from my experience Amazon has world-class customer service and many of the employees seem to focus on the best customer experience and drive improvements because the leaders truly enjoy what they are doing. We can find parallels between all sports and how they relate to our working lives. From my expertise, it is always of importance to look at the deeper meaning of why we do the things we do and the lessons we have learned from this deeper meaning. I’ve found the benefit from drawing these parallels, try to do so with your respective sport or pastime!
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To me, I have always looked at success in America as owning a plot of land (or having air rights in the city). Home-ownership has fascinated me as an avenue to achieve the American dream. As many critics have pointed out today, home-ownership is becoming increasingly difficult for young Americans who are already burdened with loads of credit card, auto, student, and other miscellaneous debt. With all of these burdens, lenders are more inclined to be laxer on lending standards to fill up vacancies in properties.
I called my broker the other day and he informed me all that I needed was 5% down on a property if I was going to be living in it. I thought to myself this is ridiculous! If someone puts less than 20% down on a property, they end up paying between .5-1% more per month for the value of the loan. That’s equivalent to more than $80 a month on a $100K loan (cost of keeping up with the Jones’s). What this is meant to illustrate is that lending standards have relaxed to the point where the amount of money down on the property is insignificant, to the point where the buyer is being squeezed more every month, paying a higher interest rate and risks defaulting on the loan if one were to lose a source of income. Sound familiar?
There were several wrongdoers to blame for the 2007 financial crisis, and I believe the blame should be shared amongst all the players. As we have seen in the 2007 financial crisis, borrowers took on significantly more than they could afford. They were considered subprime (Less than 600 credit scores), had next to no down payment and often, had relatively unstable incomes. These borrowers wanted a slice of the American dream, and they weren’t being denied. Brokers worked to sell the borrowers a home in which they had no fiduciary duty if they could afford it or not. They wanted a commission and borrowers wanted a home. Several questionable matters would take place to get this borrower in the home. The lender then funded these loans and approved/pre-approved the borrower based on income, credit score, etc. They too didn’t face any immediate liability on the performance of the loan since they then sold off these loans to investment banks to securitize these loans as investments. Once when the crash came, borrowers were severely overextended and were often underwater on their property. When they lost a source of income, they were often forced to foreclose on the property. Greed, fear of missing out, lack of regulation and financial intelligence were the main principle causes of the 2007 financial crisis.
As the yield curve has inverted several times this year, I understand there is a downturn in the horizon (next 6-12 months). In my opinion, it won’t be a good time to buy until the crash occurs regardless of interest rates. Even with low-interest rates, property valuations are still very high. The questions with this downturn are how impactful will it be to the markets (20-60%) and what will the duration of the trough be? The next question would be, what do I do then? I think now more than ever, individuals should start to build an emergency fund, develop multiple streams of income, pay off all debt and develop a diversified and conservative portfolio. By doing these things, the individual will be prepared, confident and with a smile. Meanwhile, everyone else will be in panic mode, focusing on reduction and selling off assets at a loss due to emotional responses and living an overextended life for the past decade.
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In today’s rapidly changing economy it is important that corporations are constantly evolving to keep pace with technological innovation and automation. Corporations of all sizes are starting to grasp an understanding of the disruption that many of these startups are causing. You don’t have to look far to see disruption to countless industries and I believe it is very important to take a step back and look at what routes could have been taken from a change management perspective. With ride-hailing apps (Uber/Lyft) severely increasing market share over yellow medallion cabs, streaming taking over DVD rentals or the clean energy transition from fossil fuels and other long term unsustainable energy sources. With this disruption, many companies are looking into implementing change management initiatives to help the crew withstand the headwinds and let the ship stay afloat during turbulent times. Today I am going to discuss the importance of the change management process to remain ever competitive in today’s rapidly changing environment, influencing/ communication of change management and lastly becoming a forward-thinking organization that is agile to increase market share.
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In one of my previous past lines of work, we off shored almost a dozen positions in our procurement department to southeast Asia and central Europe. The department that I was in was a Global Business Services operating model. At GBS we were able to perform services at a much cheaper level than an ordinary business unit operating within the United States. Essentially, we would take the procurement and operational work in from the business units for one to two years and then we would standardize the work and streamline all the process inefficiencies the business units have unknowingly been doing all along. It was exciting being able to take something that was once done ineffectively and be able to create a fast and simple way to do that same job (I can be lazy, so I naturally always think of the quickest way to do something correctly).
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Something that has always sparked my interest is cultural, generational and working differences across countries and companies. My working perspective and working relationship as a U.S. millennial who is interested in financial optimization differs significantly from a baby boomer who works in Japan that is interested in software implementation. Several years ago in University, I took a class that sparked my interest in the working conditions of the Japanese employee and I was fascinated by how much it differed from the United States Salaryman in ways such as unwavering loyalty, a collectivist work ethic, long work hours and the high status surrounding the Japanese Salaryman. In this post, I look to discuss general expectations surrounding the U.S. working environment, the Japanese working environment and strike commonalities between both respective countries.
I believe the U.S. is very forgiving on entrepreneurial activities and certain cities within the U.S. are even more lenient on entrepreneurial business failure such as San Francisco, California. Here I believe you can make any job your dream job if one perseveres by adding significant value while delivering high levels of customer service. It is becoming ever-less common by many individuals to join the ranks of the corporate 9-5 and dedicate one’s life for a company that doesn’t have loyalty to them. Many are now choosing to start their businesses, work a flexible schedule with several part-time jobs such as Uber/Lyft and even freelance work. In these fast-changing times, it is dangerous to remain stagnant and it is of importance to grow one’s skill set when needed. Loyalty isn’t seen by most because one day there will be several hundred layoffs at a manufacturing plant, and the next day record profits will be recorded by that same company. Therefore, many people work at seven to eight companies in their lifetime and head home right when they hit their eight-hour mark. Unfortunately, often there won’t be any notice or an attempt to reskill and retool these workers left in the dust.
The exact opposite is seen by most in the Japanese culture from my perspective. The Salaryman is held to a high regard and he shows a superseding loyalty to his company over family, hobbies and social activities with friends. They value a high level of efficiency, cramming into packed trains and often they must clock in. What I find the most interesting about the Salaryman is they look to stay with one employer for the rest of their career. Also, the workday doesn’t end right when eight hours are put in, if the employee isn’t working on answering further emails once they arrive home, then often they will engage in numerous after-work activities like drinking sake with coworkers. It is understandable to see why loyalty occurs in Japanese culture and not in the American culture. The Japanese lean to a collectivist culture and loyalty is a two-way street. When the workers of a company feel like they won’t be let go without being reskilled and the feeling of having the captain stay with the ship forms a strong sense of comrade within the organization, which in turn leads to significant value generation and employee happiness.
While it is easy to shed light on many of the things that separate the Japanese and the American working culture there are numerous fiscal similarities. Both countries are developed and bring in significant GDP per capita exceeding $45K per year. In terms of revenue, both countries bring in over a trillion dollars of revenue year over year while maintaining an unemployment rate below 8%. The point I am trying to layout here is there isn’t a correct or incorrect way a country should adopt working habits. From a financial perspective, both the individualist and collectivist working ethic are exceptional for both these countries and this goes to show these two is comparing apples and oranges. For large corporations in the U.S, I believe there is a lesson or two that can be learned from the Japanese corporations on loyalty and retooling unskilled workers.
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There are dozens of countries with inept monetary policies that cause violent currency swings that lead to devaluation. Often these violent swings are caused by trade deficits or decreased worker productivity but the largest reason currencies depreciate significantly are due to geopolitical reasons. Currencies that have faced the strongest headwinds in the past year are the Venezuelan Bolivar, the Turkish Lira, and the Indonesian Rupiah to just name a few. Often Citizens of these countries are seeking safety, but how do they do so when they can’t get their hands-on diversified asset classes in their own country or overseas?
There are many alternative coins in addition to Bitcoin that help citizens of these countries with volatile currency attain more stability. It is easy to laugh at the fact that people flight to bitcoin or any of these other altcoins for currency safety, and while these coins are very volatile, they pale in comparison to the devaluation of the Venezuelan Bolivar for example. The Venezuelan Bolivar lost 95% of its value in 2018, whereas bitcoin dropped approximately 70% in 2018. While both currencies dropped significantly, bitcoin was technically the safer alternative for citizens of Venezuela that have access to the internet and a digital wallet.
What is the potential solution if many of the cryptocurrencies of the past also have volatile swings? One solution to these deeply devaluing currencies would be a shift to stable coin cryptocurrencies and potentially Facebook’s (FB) Libra coin will help solve this issue. Something unique that the Libra coin has is a large base of users that already utilize the group of platforms. Currently, well over 2 billion people have access using FB’s software’s, so converting these users to utilize Libra would be relatively seamless. Since the Libra is considered a Stable coin, it tracks other baskets of safe currencies to minimize vicious volatile swings. Citizens of these countries want currency stability. They work their entire life to accumulate a nest egg, and they don’t want the government of their respective country to print them out of existence. In Venezuela for example, numerous protests and starvation were just a few of the effects of the hyperinflation.
Simply stated, if the cryptocurrency is trusted more than the domestic countries currency it should be adopted because it is considered the next best alternative. While there are numerous arguments against these cryptocurrency’s as a medium of exchange, store of value and divisibility, I believe they serve a strong purpose to the under-served economically in the world. The case for a U.S. citizen to transition from the USD to the Libra would be more difficult since our currency is relatively stable at approximately 2% inflation year over year. With confidence, I can say that with FB’s large network effect, this coin will remain a much more stable alternative to many of the currencies in the countries aforesaid. Adopting a new currency isn’t something to take lightly, but with individuals in a desperate situation and with extreme hyperinflation it is important to look at the better alternatives.
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Today more than ever, it is as easy as going to the Apple or Android Store to download an investing app and start investing for the first time. Endless incentives are provided to users from these investment companies so they can increase assets under management (AUM) on their platform. Often individuals are overwhelmed by the fact that they don’t know how or where to start when it comes to something as important as their money. Most individuals simply contribute to their retirement account or have their money in a money market account, but they don’t actively seek out high yields. Our money is our future and the higher our returns are the more lifestyle we can accept and the less stressed we can be in our later years.
Numerous investing fintech apps have done a tremendous job introducing younger generations to start investing such as Wealthfront, Betterment, Stash and Robinhood to name a few. The best place to start would be with these apps and to do so for approximately six months to a year or until one understands the fundamentals of investing. The idea behind these apps is that well thought out algorithms actively rebalance one’s portfolio to maintain its respective risk level and equity position. There are dozens of arguments against active versus passive management and this would be classified as passive management (will discuss in another article). Anyways, I strongly urge most individuals to also open a brokerage account once they gain a general understanding of the stock market, bond market, and alternative investments. These apps do a phenomenal job of breaking everything down to the basics, but the investment options aren’t as exhaustive as the brokerage firms such as Vanguard, Fidelity or TD Ameritrade. Also, these firms carry the benefit of an ongoing relationship and have several decade track records of operating at a high level of integrity. Furthermore, the fintech apps do have customer service, but typically it is over email or through chat in the app. Some investing questions should be answered over the phone due to the nature and complexity of certain investing situations. The brokerage firms have teams of subject matter experts in trading, account management, and general guidance. Investing simply isn’t a one brush stroke, rather each investing situation should be handled differently and when receiving guidance, it should be done through a licensed professional, rather than pressing a button on the app of a familiar company one enjoys using its products(e.g. investing in Apple because one enjoys the iPhone). Lastly, many of these investing apps are also relatively new, so we don’t know how these fintech apps will handle the inflows and outflows of AUM in a recession and many of these apps have new investing products created on these platforms with no long track record through vicious volatility.
Some of the disadvantages of the large brokerage firms are many of the apps aren’t as intuitive as the robo-advising apps, but this is changing, and it is doing so quickly. Another disadvantage of opening a large brokerage account is at first it feels overwhelming the number of investment options one can embark on. While there are dozens of FAQ’s and educational videos, it can be overwhelming being thrown into an open sea with nobody to hold your hand on what is a good, adequate and bad investment even though there is substantial research. As someone in finance, I don’t see many downsides of these large brokerage firms as long as they keep adapting with the changing times. The future of trading is at the palm of our hands, but it is of great importance we still conduct a thorough due diligence process before making any security purchases. Reading a few articles on the iPhone for twenty minutes and then buying one hundred shares of any given stock still doesn’t sit right with me. Investing needs to be done through guidance, deep research and possibly even collaboration. It is hard to do that with a quick and easy click of the button approach. All in all, it is better that we as individuals start investing young through diversification and dollar cost averaging. Whatever platform we decide isn’t permanent, but what is an important decision is to pick one that suits our investment objectives and that is different for everyone.
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With confidence, I can say most people have been on a vacation, attended an event or hosted several guests before and at the end of the month they look at their monthly net income and they are deep in the red. The good things about these events are that they are typically forecasted, and the bad news is it widens the gap to achieve long term financial goals.
For me at least, with vacations/events or hosting guests the last thing I want to do is look at my budget and impose restrictions. Enacting restrictions feels like I will be stingy, reserved and more distant from my friends. There are two root causes to this feeling, the first being that I have worked so incredibly diligent and hard to get to where I am today, so why shouldn’t I be able to make that purchase? I arrive to work early every day, I work smart, long hours, am consistently networking and I always to improve myself, why can’t I buy those $300 clothing articles or eat at the finest oceanside restaurants? The second being with friends attending or going to an event I tell myself certain falsehoods such as they came all the way over here, I need to show them the best of the best and I equate this to nice restaurants, high-end adventures and attending certain clubs. While both of these scenarios have a hint of truth, that I should be able to enjoy the fruits of my labor and I need to show them the best time possible, it simply doesn’t need to be done with reckless spending. Over the next paragraph, I will try to find solutions to these two scenarios by breaking down what can be done to reduce the financial burden, so, by month end, nobody is caught off guard.
From the first root cause mentioned earlier, working diligent, smart, long hours and networking doesn’t guarantee we will arrive in a prosperous situation where we can let go of proper budgeting. Through one to three months of sticking to one’s budget through proper saving and investing, one can decide to make the purchase at the restaurant or buy the fine articles of clothing. Doing these things can’t and shouldn’t be done on a perpetual basis every day because it ultimately leads to a removed lifestyle, while spoiling one from the smaller joys in life such as cooking a meal or working hard towards a goal and being able to make that purchase. Meals cooked on one's own can be much more fulfilling when completed at a fraction of the cost and expensive clothing can often be found at the outlet mall for a third of the cost that may be just two to three months out of style(who cares). From the second root cause above, many activities can be done that are relatively cheap but still exciting on a vacation. Hiking, cycling, frisbee golf, swimming at the pool or meeting up at a friend’s house are all cheap, but fun and exciting activities. It is still nice to go take friends and out to the nice restaurants and shows but try leaning away from making these events the highlight of every day during the vacation.
Social spending is something most people enjoy partaking in. Often, we work long weeks, where we may have interaction with people we don’t get along with or sometimes we don’t get much interaction at all. Having friends and families to hang out with that care about us provides many of us tremendous comfort. These vacations and events should not be spending outlets for our troubles during the week, rather healthy recoveries that propel us individuals to reach our financial milestones.
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As the second decade of the 21st-century approaches we are seeing an ever-increasing use of electronic payments in our everyday lives. While utilizing electronic payments is easier than ever in this day and age, consumers are less likely to feel the effect of their spending.
There are many drawbacks of having a cashless society, but some of the benefits include ease of use, less theft and the ability to transact in different countries. With the ease of use, we are now seeing Apple Pay, Cash App and Venmo take the lead in electronic payment methods. In my opinion with this technology, it doesn't feel like money so we often find ourselves often spending significantly more. One of my friends mentioned Venmo is essentially "Emoji Money". Payments are fun and exciting with these types of transactions, there is no pain associated with the transaction so we often spend more. With so much money now in the cloud or stored virtually, many vendors don't have cash on hand. This has the potential to cause less theft, but there have been numerous times when I have wanted to break a $100 bill with trivial success due to nominal merchant cash on hand. Furthermore, many businesses prefer cash rather than electronic transactions because these vendors need to pay a merchant fee for every single transaction. With large dollar transactions, this leaves the vendor receiving a substantially smaller amount of money. On the flip-side, many vendors need a place to store cash safely which is another large expense too. In both situations, the vendor is paying for transactions directly(fees) or indirectly(cash management).
Most vendors don't need to store as much cash in the registers anymore because of the increase in electronic payments. With cash, there is an inherent risk of theft with little protection. Counterfeiting is also a major cause for concern with cash payments. In some South American countries, counterfeiting is very prevalent and the counterfeited bills look very realistic. This is currency risk, massive fraud and ends up negatively affecting many innocent individuals. With a cashless society, this wouldn't occur anymore. Individuals can still steal someone's wallet and attempt to max out as many credit cards as possible before canceling, but this isn't as common and the individual utilizing the credit card won't be responsible. Some may argue that a cashless society would open up our world for hackers and data breaches. While this is true, there is typically several layers of encrypted protection for the banks.
The ability to transact in another country with ease is a beneficial game changer. Now we don't need to worry about spot and forward rates on currencies when exchanging at the airport for a vacation anymore. We can now transact across borders with many credit card companies waiving foreign transaction fees. People today travel internationally more than ever and having an easy payment method across borders is of significant value to most.
With this transition to a cashless society, there will still be individuals who choose to use cash for numerous reasons. Handymen, waiters/waitresses, and skilled trades often rely on cash in their business. Many people also simply have emotional attraction cash and don't want to change with the times to the new form of money. Older generations specifically often take comfort in utilizing cash because it is a payment method they have used their entire life and they have grown to know. Just as we have transitioned from gold and silver coins several hundred years ago to paper bills, the transition to a completely cashless society will happen but it will take time. All U.S. denominated dollars are a form of legal tender for public and private debts, so unless this changes, there will always be some individuals utilizing cash across all business.
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I sometimes find it hard to believe individuals will invest in stocks that don't pay them any money on a quarterly basis. These individuals are giving up their hard earned capital, in exchange for risk and the chance of capital gains. Dividends tend to provide certainty, security and is your compensation for bearing part of the companies risk/reward.
Please note there are many factors that go into investing in dividend paying stocks. It is important to not just look at the dividend yield. Many factors should be looked at such as earnings growth and dividend payout ratio. I have seen numerous circumstances where companies that have high dividends end up getting burnt badly (Kraft) because they missed a certain figures in earnings. As with any investment, all factors should be assessed carefully before investing in a dividend paying stock.
A comparison that I heard a while back was that of owning a 1000 barrels of oil versus owning the pipeline that delivers the oil. What would you rather own the pipeline or the 1000 barrels of oil?
In 2019 1,000 barrels of oil would be equivalent to $63,900, and I wouldn't blame most individuals for taking this route. The thing is, the pipeline will bring a perpetual benefit as long as oil is still around (controversial). The point is, that you won't have as much immediate cash owning this pipeline, but the oil the companies that want to utilize it will have to pay a fee to move it through consistently over the next several decades.
Let's say this pipelines upfront cost was $1M. In 2019 moving 1,000 barrels of oil 1,000 miles via pipeline would cost approximately $750(much cheaper alternative than rail, air or truck). Nevertheless, just transporting this much oil everyday for a year would yield $273,750. While most individuals would focus on only receiving that $750 rather than the $63,900, standing back and being patient it is clear owning the pipeline is much more profitable and will be paid off in around 4 years.
When thinking of dividends I think of this pipeline analogy. I want something that will pay me concurrently forever. I want to think of every stock that I own as the pipeline and the dividends that I receive from the company as the oil that flows through this pipeline. Putting up hard earned capital for an investment isn't easy and I believe that I should be compensated according to the risk I put up. Owning a pipeline and not receiving any oil royalties would be a horrible investment. I believe the same thing goes for owning stocks that don't pay a dividend.
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One television show that I am a major fan of is a show called Black Mirror. Specifically, there is one episode called NoseDive that I am a major fan of. One of the reasons I enjoy this episode so much is because of the number of similarities I see between this episode and our society today. Each of the citizens in this apparent Utopian society receives a score based on how well they behave. If they smile, hold the door open for others and put hang out with certain groups of individuals their social score increases. If they partake in activities that are full of vice their social score will decrease (smoking, aggregation or hurting others physically). This has fascinated me because often the people with the higher social score received numerous benefits such as larger and more beautiful homes, well-developed networks and other various perks.
This system is likely to become a reality in China according to many articles I have read on the subject. With this new social credit system smoking in a smoke-free zone or idling one's car for extended periods of times could lead to a reduced social score. One of the big differences from the episode of NoseDive was that it only records negative behaviors and everyone starts off with a perfect score. Anyways, the consequences of having a lower social score could mean fewer discounts from internet providers, the slower application process to travel to other countries or more difficult getting into certain educational programs.
Like in Nosedive, the lead women found it quite difficult to navigate through day to day life with a lower social credit score. She couldn't get into certain events, access the home of her dreams, or get a ticket to travel to the destination. She was treated as a sub-class citizen because of the negative behaviors she took on. This is going to roll out next year in China and I believe it is important to look at the benefits and disadvantages of this system.
I personally am not a fan of the system, and while it does aim to have good intentions I believe eventually people in power can abuse the different regulations. Corruption always finds a way to seep into the government. One concern that I have for this system is if it were to branch into the inability to go to certain national parks in the country, obtain certain gym memberships or even not allow one to own a pet. I also think it is important to consider challenging the system and to see if there are more effective ways to approach good behavior rather than having a score. Naturally, if one treats others well and behave well one will get treated well in exchange. The same is for the opposite. I don't think it should be up to a government or a system to dictate whether we are good citizens or not. If there is illegal behavior, then that crosses the line and the individual should be given an adequate trial and sentence.
While China is an authoritarian country, I think it is important that we look and do our best to look into and advocate against this system that will be implemented over the coming year. Having a limit on freedom restrains creative thinking and dampers the ability to innovate. While I do understand why the Chinese government would like to roll this out, in the long run, I am confident it will cause needless tension between the citizens and the government which wastes both time and energy.