Category Archives: Financial Planning

FinTech…An Investing Opportunity

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The financial technology (FinTech) services industry continues to attract tech companies that transform how people and businesses spend, save, borrow, invest, and more. And, FinTech startups continue to attract a growing amount of entertainment media attention and private capital.

Effectively, these companies have transformed an already existing, and one of the world’s largest industries, finance, by minimizing the friction and pain points that are commonly connected with it.

Currently, the millions of these businesses’ customers and clients can simply go online to one of the many FinTech companies and transfer money to any location in the world in their currency at excellent exchange rates, and have the money deposited within a day, and in some cases, minutes.

Conversely, there are literally several hundred public and private FinTech companies offering a variety of products and services. The 2021 FinTech 250 list, shown below, features the most promising private FinTech companies from around the world, according to CB Insights’ Intelligence Unit.

Source: CB Insights

Some of the biggest names in the FinTech industry in 2021, according to www.reportsanddata.com, include:

  • Ant Group
  • Stripe
  • Adyen
  • PayPal
  • Coinbase
  • Robinhood
  • Square
  • Klarna
  • SoFi
  • Credit Karma

Many traditional financial companies have incorporated technology into their operations in order to respond to changing trends and become more innovative and inventive in order to attract new customers. However, FinTech still refers to new startups that have emerged in the last two decades or so and are co-existing with established large financial nce companies.

Don’t look past FinTech giant Amazon

Amazon is dipping its enormous enterprise toe into FinTech and financial services, according to CB Insights. From payments and lending to insurance and checking accounts, Amazon is engaging in financial services from every angle without even applying to be a conventional bank.

Amazon’s has an existing strategy in financial services and a vast array offerings — what they have launched and built, where the company is investing. The company remains very focused on building financial services products that support its core strategic goal: increasing customers participation in the Amazon ecosystem.

“What people never realize or truly understand about Amazon is that part of the recipe for success is daring to try things you have no idea whether will succeed or not, and if you think that you have a notion of how to succeed … you try again.” Patrick Gauthier, ex-PayPal employ and ‘Pay with Amazon’ team lead

References:

  1. https://www.cbinsights.com/research-fintech-250
  2. https://www.reportsanddata.com/blog/top-10-leading-fintech-companies-in-the-world
  3. https://www.forbes.com/fintech/2021/#33ba693931a6
  4. https://www.cbinsights.com/research/report/amazon-across-financial-services-fintech/
  5. https://millennialmoney.com/fintech-stocks/

Tax Avoidance vs. Tax Evasion

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“The avoidance of taxes is the only intellectual pursuit that carries any reward.” John Maynard Keynes

There’s nothing wrong with you wanting to pay less in federal, state and local taxes. Where you can run afoul of tax regulations is how you go about decreasing your tax obligation. There are legitimate tax avoidance steps you can take to maximize your after-tax income. But, failing to pay or deliberately underpaying your taxes is tax evasion and it’s illegal.

The U.S. federal income tax system is based on the idea of voluntary compliance. Under this system, it is the taxpayer’s legal responsibility to report all income.

Tax evasion is illegal and is punishable under law

Tax Evasion—The failure to pay or a deliberate underpayment of taxes. Internal Revenue Service

A taxpayer who intentionally hides income— by lying, concealing information, or committing fraud — has committed a willful act known as tax evasion, explained Jo Willetts, Director of Tax Resources at Jackson Hewitt. Tax evasion is illegal and carries serious criminal and civil consequences.

According to the Internal Revenue Service (IRS), one way that people try to evade paying taxes is by failing to report all or some of their income. Sometimes people do not report income gained through illegal activities such as gambling and selling stolen goods. Other times they do not report all the tips they collect or the money they earn through legal activities such as garage sales, baby-sitting, tutoring, or yard work.

Common examples of tax evasion include non-reporting or underreporting of:

  • Overseas income;
  • Cash-in-hand payments for jobs like babysitting, catering, cleaning, or manual labor;
  • Income from side gigs;
  • Income from illegal activities
  • Gains made on digital currencies like Bitcoins; and
  • Payments received from a cash business like tutoring, pet sitting, or childcare.

Tax evasion can also include things like overstating deductions or failing to file a tax return.

Tax avoidance or minimizing your tax obligation is legal and encouraged by IRS

Tax Avoidance—An action taken to lessen tax liability and maximize after-tax income. Internal Revenue Service

Minimizing your federal, state and local taxes is perfectly legal and encouraged. Minimizing your taxes is about managing and structuring your finances in a way that complies with the tax code, while at the same time, lowering your total income tax. 

IRS regulations allow eligible taxpayers to claim certain deductions, credits, and adjustments to income. Essentially, these provisions have been built into the tax code to influence taxpayer behavior.

For instance, to encourage home ownership, an interest deduction is available for eligible homeowners with a mortgage. To make it easier for primary caregivers to get back to their job and career, working parents could potentially qualify for a credit for childcare expenses. To promote financial protection for families, death benefits from a life insurance policy is exempt from taxes.There are also deductions based on the number of family members.

These are only a few of the many ways people can legally limit the tax they pay. However, the taxpayer must be able to prove that he or she qualifies. Many people pay more federal income tax than necessary because they misunderstand tax laws and fail to keep good records.

In reality, most taxpayers are already engaging in some form of tax minimization. For example, if you contribute to an employer-sponsored retirement plan with pre-tax funds, that is a tax-minimization strategy because (1) you’re deferring a tax payment, and (2) you will likely pay less tax when the funds are withdrawn in retirement.

The most common and effective tax planning strategies include:

  • Contribute a 401(k) or IRA: The money people put into their 401(k) or IRA the IRS does not tax until it’s withdrawn. Many employers offer a 401(k) option with a matching contribution to help boost their employees’ retirement funds.
  • Revise W-4 withholdings: Most people have their income tax withholdings set to a standard amount for their tax bracket. Every financial situation is unique. Therefore, consider revising how much money is paid to the IRS to reduce tax liabilities later.
  • Use FSAs and HSAs: With flexible spending and health savings accounts, individuals can contribute to a dedicated account for their medical expenses. This money is specifically for medical care, so it is added to an account pre-tax.

Ultimately, investing money into financial tools that offset taxes can be a significant advantage for both long-term investment and tax planning strategies. The IRS offers a variety of opportunities for people and businesses to reduce their tax liabilities.

Additionally, the most practical IRS tax avoidance methods include:

  • Itemization: Depending on how much an individual or couple’s expenses are every year, it might be more lucrative to itemize tax deductions. It can be time-consuming and requires diligent recordkeeping, but it’s especially valuable for anyone with mortgages or expensive medical bills.
  • Tax credits: A tax credit, which is different from a deduction, gives money back to individuals and families. These credits generally come with stipulations. However, these credits can be worth the investment for people with big tax bills.
  • Tax deductions: Tax deductions are another way to reduce tax liabilities. With a deduction, someone’s taxable income gets reduced, which lowers the total amount owed to the IRS. Popular tax deductions include work-related expenses, property, and real estate taxes, and contributions to charity.

Tax avoidance or minimizing your federal taxes through the IRS can be one of the most critical tools for individuals, families and small businesses that don’t have access to tax-reducing investment strategies.

In summary, tax avoidance is the practice of using legal means to minimize your tax burden. Tax evasion, on the other hand, is using illegal means to hide or under report income from the IRS, or take deductions you aren’t actually allowed.

“Congress can raise taxes because it can persuade a sizable fraction of the populace that somebody else will pay.” Milton Friedman

References:

  1. https://apps.irs.gov/app/understandingTaxes/whys/thm01/les03/media/ws_ans_thm01_les03.pdf
  2. https://www.findlaw.com/tax/tax-problems-audits/tax-evasion-vs-tax-avoidance.html
  3. https://www.wsj.com/articles/buy-borrow-die-how-rich-americans-live-off-their-paper-wealth-11625909583
  4. https://www.jacksonhewitt.com/tax-help/tax-tips-topics/tax-fraud/tax-avoidance-vs-tax-evasion-whats-the-difference/
  5. https://taxcure.com/blog/tax-avoidance-vs-tax-evasion

Financial Technology (Fintech)

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“There are more financial products for more consumers than you could ever imagine.” Fintech Startup Founder

Fintech, or financial technology, refers to the technological innovation in the design and delivery of financial services and products. The term can apply to any innovation in how companies and people transact business, from the invention of digital money to double-entry bookkeeping. The technology in finance continues to evolve; advancements include the use of Big Data, artificial intelligence (AI), and machine learning to evaluate investment opportunities, optimize portfolios, and mitigate risks.

Fintech refers to any business that uses technology to enhance or automate financial services and processes. The term encompasses a rapidly growing industry that serves the interests of both consumers and businesses in multiple ways. From mobile banking and insurance to cryptocurrency and investment apps, fintech has a seemingly endless array of applications.

There are 326 Fintechs, according to one database, from one-stop shops such as PayPal Holdings Inc. and Revolut Ltd. to behind-the-scenes payment processors.

Fintech companies integrate technologies (like AI, blockchain and data science) into traditional financial sectors to make them safer, faster and more efficient. Fintech is one of the fastest-growing tech sectors, with companies innovating in almost every area of finance; from payments and loans to credit scoring and stock trading.

“Fintech’s disruptive potential was unleashed in mature markets such as the U.S. only recently, thanks to a confluence of factors: low interest rates, better technology, rising consumer demand, and a more permissive attitude toward nonbank finance”, according to Lionel Laurent, a Bloomberg Opinion Columnist. “Efficiency gains in software have kept products coming.”

Fintech technology examples include:

  • Crowdfunding Platforms – Crowdfunding platforms allow internet and app users to send or receive money from others on the platform and have allowed individuals or businesses to pool funding from a variety of sources all in the same place. Instead of having to go to a traditional bank for a loan, it is now possible to go straight to investors for support of a project or company. 
  • Blockchain and Cryptocurrency – Cryptocurrency and blockchain are hallmark examples of fintech in action. Cryptocurrency exchanges connect users to buying or selling cryptocurrencies like bitcoin or litecoin. But in addition to crypto, blockchain help reduce fraud by keeping provenance data on the blockchain. And while cryptocurrency and even blockchain have certainly taken parts of the investment world by storm in recent years. 
  • Mobile Payments – It seems as though everyone with a smartphone uses some form of mobile payments. In fact, according to Statista data, the global mobile payment market is on track to surpass $1 trillion in 2019. Using increasingly sophisticated technology, services have emerged that allow consumers to exchange money and payments online or on mobile devices – including popular payment app Venmo. 
  • Insurance – Fintech has even disrupted the insurance industry. In fact, insurtech (as it’s been so-called) has come to include everything from car insurance to home insurance and data protection. Additionally, insurtech startups are increasingly attracting funding. 
  • Robo-Advising and Stock-Trading Apps – Robo-advising has disrupted the asset management sector by providing algorithm-based asset recommendations and portfolio management that have increased efficiency and lowered costs. Since the rise of more advanced technology that can analyze various portfolio options 24/7, financial institutions have adapted to offer online robo-advising services. Perhaps one of the more popular and big innovations in the fintech space has been the development of stock-trading apps. When once investors had to go directly to a stock exchange like the NYSE or Nasdaq, now, investors can buy and sell stocks at the tap of a finger on their mobile device. And with inexpensive and low-minimum apps, investing from anywhere with any budget has never been easier. 
  • Budgeting Apps – One of the most common uses of fintech is budgeting apps for consumers, which have grown exponentially in popularity over the years. Before, consumers had to create their own budgets, gather checks, or navigate excel spreadsheets to keep track of their finances. But after the fintech revolution prompted the development of financial services apps, consumers can easily and efficiently keep track of their income, expenses and other budgeting tools that have revolutionized the way consumers think about their money. Budgeting apps help consumers track their income, monthly payments, expenditures and more – all on their mobile device. 

With fintech innovations, firms can better meet customer needs and expectations. With clear benefits, fintech is quickly changing the landscape of investment management. Advancements include the use of robo-advisers, Big Data, AI, and machine learning to evaluate investment opportunities, optimize portfolios, and mitigate risks. In the area of financial recordkeeping, blockchain and distributed ledger technology are creating new ways to record, track, and store transactions for financial assets.

Additionally, artificial intelligence (AI) is having a major impact on the finance industry as part of fintech. AI is being used to analyze investment opportunities, optimize portfolios, and mitigate risks, among many other functions, but the applications go well beyond the investment decision-making process. For example, automated wealth advisers (or “robo-advisers”) may assist investors without the need for a human adviser, or they may be used in combination with a human adviser. The desired outcome is the ability to provide tailored, actionable advice to investors with greater ease of access and at lower cost.

The annual Forbes Fintech 50 compiles some of the hottest fintech platforms on the market worth noting.

Fintech is changing the landscape of financial and investment management. At its core, Fintech exist to help companies, business owners and consumers better manage their finances, processes, and lives by utilizing specialized technology, software and algorithms.

References:

  1. https://www.investopedia.com/terms/f/fintech.asp
  2. https://www.cfainstitute.org/en/research/fintech
  3. https://www.bloomberg.com/news/articles/2021-10-07/fintech-s-explosive-growth-has-regulators-scrambling-lionel-laurent
  4. https://www.thestreet.com/technology/what-is-fintech-14885154
  5. https://www.forbes.com/fintech/2021/#1e6de3bc31a6
  6. https://www.forbes.com/sites/elizahaverstock/2021/06/08/the-future-of-personal-finance-fintech-50-2021/?sh=2ce3aba8710a

Psychology of Passwords

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The Online Behavior That’s Putting You at Risk

As more and more people work and socialize exclusively online, protecting your digital identity is more important than ever. Most people believe they are knowledgeable about the risks of poor password security; however, they are not using that knowledge to protect themselves from cyber threats.

The Psychology of Passwords report examines online security behaviors of 3,250 global respondents, and it shows that people aren’t protecting themselves from cyber security risks even though they know they should.

Top 6 Risky Behaviors Making You a Target:

1. We use the same password over and over. If a hacker gets access to one account, they can wreak havoc on all of them!

  • 53% haven’t changed their password in the last 12 months even after hearing about a breach in the news
  • 42% say that having a password that’s easy to remember is more important than one that is very secure.

2. We want to be in control. We think that reusing passwords gives us more control, but it really puts us at risk. When asked why they reuse passwords, respondents said:

  • 60% I am afraid of forgetting my login information
  • 52% I want to be in control and know all of my passwords

3. We still memorize our passwords. Can you memorize unique, strong passwords for all your accounts? Only if you’re a superhero. If not, you shouldn’t be relying on your memory to protect you online.

  • 54% keep track of passwords by memorizing them
  • Remembering isn’t working: 25% reset their passwords once a month or more because they forgot them

4. We ignore breaches. If a brand you use is breached, you should change your password.

  • 52% haven’t changed their password in the last 12 months – even after hearing about a breach in the news

5. We underestimate our risk. I’m not a target, right? Wrong. While your credit card number might only get a hacker US $5 on the dark web2, if they steal hundreds of thousands of pieces of data in one fell swoop, it adds up.

  • 41% think their accounts aren’t valuable enough to be worth a hacker’s time

6. We are predictable. Personal information can be easily found by hackers on your social media accounts or by doing a quick internet search.

  • 22% could guess their significant other’s password
  • 24% use sentimental information in their passwords

There is much we need to be doing to protect ourselves online.

References:

  1. https://staysafeonline.org/wp-content/uploads/2020/06/Psychology-of-Passwords_2020-Ebook_FINAL.pdf
  2. https://staysafeonline.org/resource/psychology-of-passwords/

October is National Financial Planning Month

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“Financial Planning Month is a great opportunity to get your finances and budgets in order before life gets too busy.”

See the source image

October is National Financial Planning Month—an ideal time to plan your financial health and future. Research from the Brookings Institution shows that just one-third of Americans are truly financially healthy. Half are just coping, while nearly one in five are financially vulnerable, acdording to The U.S. Financial Health Pulse 2020 Trends Report. Financial health at a minimum addresses the ability of individuals and families to meet their current obligations and needs, absorb and recover from financial shocks, secure their future, and improve their financial situation over time. And, financial planning can be an essential tool in improving an individual and family’s financial health.

As of August 2020, 33% of people in America were Financially Healthy, 50% were Financially Coping, and 17% were Financially Vulnerable  U.S. Financial Health Pulse 2020 Trend Report, Financial Health Network

Many individuals think financial planning is only needed for wealthy investors with complex financial asset portfolios, but the reality is a financial plan is something that can help everyone — not just the wealthy. Financial planning simply means having a well-thought-out strategy that helps you achieve longer-term financial goals and build wealth while meeting near-term money needs.

You should have a financial plan in order to increase your likihood of reaching your financial goals and maintaining your lifestyle. Financial planning includes budgeting, emergency planning, investing, tax planning, retirement planning, and basically other ways to get your finances in order and create mindful budgets to ensure a safe and secure future.

  • Financial planning applies to everyone, whether you’re just starting out or are a wealthy investor.
  • A financial plan answers real questions to help you make better day-to-day decisions and reach your financial goals—and it doesn’t have to be expensive or complicated.

With a plan, you can set short-term and long-term financial goals and benchmarks. You can estimate the amount of money you will likely need to meet retirement, college, and health care expenses. You can also get a good look at your present financial situation—where you stand in terms of your net worth and cash flow, which will thehelp you understand the distance between where you are financially and where you would like to be in the future.

Growing and retaining wealth takes more than just investing. Along the way, you must plan to manage risk, manage and eliminate bad personal debt, and defer or reduce taxes. A good financial plan addresses those priorities while defining your investment approach. It changes over time, to reflect changes in your life and your financial objectives.

Having a savings account is a good start, but money in a savings account simply won’t produce the total returns and dividends that are needed for long-term financial success and very few Americans retire on savings alone. Rather, they invest some of their savings and retire mostly on the accumulated earnings those invested dollars generate over time.

Investing your money and capital in assets is essential to achieve financial freedom. In fact, most Americans retire with the money that they earned from investing, not the money they set aside in their savings account.

Last year, a Gallup poll found that just 38% of investors had a written financial plan. Gallup asked those with no written financial strategy why they lacked one. The top two reasons? They just hadn’t taken the time (29%), or they simply hadn’t thought about it (27%).

Paying down debt is also an integral part of a financial plan. Many people get overwhelmed when thinking about debt and developing a strategy to pay it down. Debt, not including your mortgage, should consume less than 20% of your income. With your mortgage, debt should equal 40% or less. Paying the debt with the highest interest first will reduce the amount of interest you pay and saves more money; however, paying the smallest balances first allows you to see progress quicker.

Financial planning is the key to getting on the road to financial success and freedom.

A financial plan simply means knowing where you want to go financially and figuring out how best to harness your resources to get you there. And it’s not just about money. It’s about your “why” (purpose, cause or belief that drives you), your aspirations, your priorities for you and your family, and how to protect yourself both now and in the future.

To get started mapping out your financial future, it’s essential that you understand why you’re doing what you’re doing. Knowing your why is the single most important question you can ask with respect to your financial future.

Failure to ask and answer the question “why” can be the single greatest oversight you can make when it comes to your quest for financial freedom. Those who do have a strong sense of why they are “saving and investing” are more likely to reach their financial goals.

After determining your why, here are 10 Steps you can follow to prepare a do it yourself (DIY) Financial Plan, according to Charles Schwab:

  1. Write down your goals—The first thing you should ask yourself are what are your short-term needs? What do you want to accomplish in the next 5 to 10 years? What are you saving for long term? It’s easy to talk about goals in general, but get really specific and write them down. Which goals are most important to you? Identifying and prioritizing your goals will act as a motivator as you dig into your financial details.
  2. Create a net worth statement—Achieving your goals requires understanding where you stand today. So start with what you have. First, make a list of all your assets—things like bank and investment accounts, real estate and valuable personal property. Now make a list of all your debts: mortgage, credit cards, student loans—everything. Subtract your liabilities from your assets and you have your net worth. But whatever it is, you can use this number as a benchmark against which you can measure your progress.
  3. Review your cash flow—Cash flow simply means money in (your income) and money out (your expenses). How much money do you earn each month? Be sure to include all sources of income. Now look at what you spend each month, including any expenses that may only come up once or twice a year.
  4. Zero in on your budget—Your cash-flow analysis will let you know what you’re spending. Zeroing in on your budget will let you know how you’re spending. Write down your essential expenses such as mortgage, insurance, food, transportation, utilities and loan payments. Don’t forget irregular and periodic big-ticket items such as vehicle repair or replacement costs, out of pocket health care costs and real estate taxes. Then write down nonessentials—restaurants, entertainment, even clothes. Examining your expenses helps you plan and budget when you’re building an emergency fund. It will also help you determine if what you’re spending money on lines up with what is most important to you.
  5. Focus on debt management—Debt can derail you, but not all debt is bad. Some debt, like a mortgage, can work in your favor provided that you’re not overextended. It’s high-interest consumer debt like credit cards that you want to avoid. Try to follow the 28/36 guideline suggesting no more than 28 percent of pre-tax income goes toward home debt, no more than 36 percent toward all debt. Look at each specific debt to decide when and how you’ll systematically pay it down.
  6. Get your retirement savings on track—Whatever your age, retirement saving needs to be part of your financial plan. The earlier you start, the less you’ll likely have to save each year. You might be surprised by just how much you’ll need—especially when you factor in healthcare costs. But if you begin saving early, you may be surprised to find that even a little bit over time can make a big difference. Calculate how much you will need and contribute to a 401(k) or other employer-sponsored plan (at least enough to capture an employer match) or an IRA.
  7. Check in with your portfolio—If you’re an investor, when was the last time you took a close look at your portfolio? Market ups and downs can have a real effect on the relative percentage of stocks and bonds you own—even when you do nothing. And even an up market can throw your portfolio out of alignment with your feelings about risk. Don’t be complacent. Review and rebalance on at least an annual basis.
  8. Make sure you have the right insurance—Having adequate insurance is an important part of protecting your finances. We all need health insurance, and most of us also need car and homeowner’s or renter’s insurance. While you’re working, disability insurance helps protect your future earnings and ability to save. You might also want a supplemental umbrella policy based on your occupation and net worth. Finally, you should consider life insurance, especially if you have dependents. Review your policies to make sure you have the right type and amount of coverage.
  9. Know your income tax situation—The Tax Jobs and Cuts Act of 2017 changed a number of deductions, credits and tax rates beginning in 2018. And that caught a lot of people by surprise as they filed last year’s taxes. For instance, standard deductions were increased significantly, eliminating the need to itemize for a lot of people. To make sure you’re prepared for tax season, review your withholding, estimated taxes and any tax credits you may have qualified for in the past. The IRS has provided tips and information at https://www.irs.gov/tax-reform. Taking advantage of tax sheltered accounts like IRAs and 401(k)s can help you save money on taxes.
  10. Create or update your estate plan—At the minimum, have a will—especially to name a guardian for minor children. Also check that beneficiaries on your retirement accounts and insurance policies are up-to-date. Complete an advance healthcare directive and assign powers of attorney for both finances and healthcare.

“Saving is a great start, but planning to reach your financial goals is even better.”

A financial plan can be especially important if you don’t have a lot of money because it can help you get on the path to greater financial strength and health. Think of it like a roadmap. Specifically, if you want to enjoy your senior years to the fullest, taking the time to financially plan for retirement is a smart bet to enhancing your financial health. Financial health at a minimum should address the ability of individuals and families to meet their current financial obligations and needs, absorb and recover from financial shocks, secure their future, and improve their financial situation and build wealth over the long term.

Successful investing starts with knowing your purpose why and with financial planning. Investors who stick to a financial plan have an average total net worth that’s 2.5 times greater than those who don’t follow one, according to Charles Schwab research. Financial planning helps you understand where you are today. It also creates a roadmap to get you where you want to be.

References:

  1. https://www.kiplinger.com/article/investing/t023-c032-s014-october-is-national-financial-planning-month.html
  2. https://www.brookings.edu/research/measuring-the-financial-health-of-americans/
  3. https://engineeringmanagementinstitute.org/knowing-your-why/
  4. https://s3.amazonaws.com/cfsi-innovation-files-2018/wp-content/uploads/2020/10/26135655/2020PulseTrendsReport-Final-1016201.pdf
  5. https://www.kiplinger.com/personal-finance/603659/financial-planning-is-for-everyone-yes-that-means-you
  6. https://loanatlast.com/october-is-national-financial-planning-month/
  7. https://www.schwab.com/resource-center/insights/content/7-important-questions-financial-plan-can-help-you-answer

U.S. Tax Policy Favors Savings

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As prices rise, the existential risk in the market is related to inflation. As inflation goes up so will interest rates which has negative implications to future cash flows (this disproportionately negatively affects tech companies). Regarding rising interest rates and during a rising inflationary period, the surest way to survive is to keep growing faster than the rate of rising costs. Chamath Palihapitiya, Social Capital 2020 Annual Letter

While investors react nervously regarding factors like inflation, government gridlock in Washington, and geopolitical and macroeconomic issues around the world, the stock markets continue their broad selloff. While the $1.5 trillion bipartisan infrastructure bill has passed the Senate, the legislation has been stalled in the House of Representatives, and some pundits are questioning whether the legislation can be passed due to political wrangling among Democrats.

The U.S. tax code broadly incentivizes savings for two different reasons:

  1. To ensure that people accumulate enough wealth to be able to support themselves during retirement.
  2. The nation’s savings provides capital for businesses to borrow, invest, and expand, which is necessary to increase economic growth.

The tax code incentivizes savings in several different ways:

  1. The U.S. does not tax investment returns until the person actually realizes it—an investor who owns a stock that doubles in price doesn’t pay the IRS until he sells it.
  2. It taxes certain investment income—most notably capital gains—at a lower rate than ordinary income.
  3. Investors can make investments via a variety of tax-preferred savings accounts, such as individual retirement accounts (IRAs) or their 401(k) retirement accounts set up by their employer.

An investor can either deduct the money he puts into the account from his ordinary income and then pay taxes on the money only when he takes it out upon retirement (traditional IRA and 401(k), or he can pay taxes up front on the income and then the money in the account goes untaxed upon withdrawal (Roth IRA).

A retiree with $1.5 million in his or her 401(k) will discover that taxes will consume 25 to 35 percent of every withdrawal which dramatically reduce the financial freedom of the retirement nest egg.

Proposals in Congres to pare back this tax break—such as by assessing a tax on unrealized capital gains each year or treating capital gains income the same as ordinary income—have fortunately foundered. The former would be unworkable for many people (the year after a robust stock market would a trigger a big tax bill for anyone with a stock portfolio and force millions to dispose of a portion of their investments) and the latter would also effectively reduce savings by greatly reducing the long-term real returns.

References:

  1. https://www.forbes.com/sites/ikebrannon/2021/10/04/thiels-roth-account-is-not-a-policy-failure/
  2. https://www.socialcapital.com/annual-letters/2020

5 Rules to Buy Low and Sell High in the Stock Market

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“The reason people buy high, besides the fact that they are investing on emotion, is because they don’t know how to value a business.” Tom Vilord

The exact same events can be interpreted differently by investors.

Stock prices fluctuate based on many factors: world events, the Treasury bond interest rate, a company’s growth earnings, the perceived risk of a stock, inflation, the economic strength of the market, and so on. The price of a stock at any given time is based on the supply and demand driven by emotions at that specific moment in the market.

Most investors buy high and expect to sell higher. “I think the reason people buy high, besides the fact that they are investing on emotion, is because they don’t know how to value a business,” says Tom Vilord, president and CEO of Wall Street Value, an investor consulting and education company. “It’s as simple as that.”

In contrast, to buy low and sell high, here are five rules, according to Value Walk:

  1. Buy Stocks That Are Out-of-Favor – One way to find a company trading at a terrific value is to select a stock that is out-of-favor – meaning that people are selling the stock for a reason. If a stock is low, it’s low because people don’t like it. Whether the stock is down due to macroeconomic events, industry specific downturns, or company disasters, the majority of investors will want to steer clear. The uglier a company’s future looks, the cheaper the stock will be.
  2. Sell Stocks That Are In-Favor – Typically, in-favor stocks are expensive. If investors are excited about the prospects of a particular company, they will pay more to own it. This is precisely the time when a stock should be sold, not bought. The brighter a company’s future appears to be, the more someone will be willing to pay you for the stock.
  3. Ignore Sell-Side Analysts – A sell-side analyst is a professional money manager who analyses a stock for the purpose of selling a report of his or her analysis. The problem with sell-side analysis is that there are some significant career risks which influence an analyst’s opinion. The first risk has to do with an analyst’s fear of being different. This results in most sell-side analysts playing it safe and making most sell recommendations when a stock is widely disliked and already low.
  4. Overcome Your Emotional Instincts – Your biggest enemy as an individual investor is yourself. Investing does not come naturally to humans. Our emotional instincts make us panic at the first sign of danger and become euphoric as circumstances improve. Following these instincts causes people to make terrible investment decisions and ultimately to buy and sell at the wrong times. When stocks are at all-time highs, we become excited and buy because everything is great. When stocks are falling, we panic and sell because there’s no saying how far prices will go. Investors who can overcome these deep-rooted emotions will ultimately outperform everyone else who simply follows the herd.
  5. Base Decisions on Fundamental Data – Using current and historical financial statements to calculate a company’s value prevents overly optimistic or pessimistic analysis. Actual data removes any sense of emotion and uncertainty when evaluating an investment.

When it comes to investing, emotions are best ignored. Fear, greed and other emotional signals from the amygdala part of your brain, can easily derail even the best-laid investing plans.

Emotional investing occurs when investors make reactionary decisions about their assets based on a feeling of how the market is performing rather than on the company’s fundamentals and how the market is likely to perform long term, says Zack Shepard, vice president of Matson Money in Scottsdale, Arizona.

Individual investors who buy low and sell high in the stock market often do well in the stock markets. Thus, it’s important to ignore past price levels. Failing to do so will cause anchoring bias. Investors often determine whether a stock is high or low based on what the price was in the past, instead of a company’s fundamental.

Having a plan, even if you don’t follow the plan, is better than having no plan at all. Peter Thiel

References:

  1. https://www.valuewalk.com/5-rules-to-buy-low-and-sell-high-in-the-stock-market/
  2. https://money.usnews.com/investing/cryptocurrency/articles/2017-12-13/heres-why-some-investors-buy-high-and-sell-low
  3. https://www.wealthsimple.com/en-ca/learn/buy-low-sell-high

Cybersecurity Awareness Month Safety Tips 

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Each and every one of us needs to do our part to make sure that our online lives are kept safe and secure.

Cybersecurity Awareness Month is a government and private sector partnership that raises awareness about cybersecurity and stresses the collective effort required to stop cyber crimes, online thefts, and scams.

Malicious cyber activity threatens the public’s safety and America’s national and economic security. Taking the right security measures and being alert and aware when connected are key ways to prevent cyber intrusions and crimes.

It’s important to understand the more common cyber crimes and risks online, which include:

  • Business e-mail compromise (BEC) scams exploit the fact that so many of us rely on e-mail to conduct business—both personal and professional—and it’s one of the most financially damaging online crimes.
  • Identity theft happens when someone steals your personal information, like your Social Security number, and uses it to commit theft or fraud.
  • Ransomware is a type of malicious software, or malware, that prevents you from accessing your computer files, systems, or networks and demands you pay a ransom for their return.
  • Spoofing and phishing are schemes aimed at tricking you into providing sensitive information to scammers.
  • Online predators are a growing threat to young people.

The FBI is the lead federal agency for investigating cyber crimes and intrusions. They recommend that you should follow the cyber safety tips below to help protect yourself and your family:

Cyber Safety Tips 

  • Keep software systems up to date and use a good anti-virus program.
  • Examine the email address and URLs in all correspondence. Scammers often mimic a legitimate site or email address by using a slight variation in spelling.
  • If an unsolicited text message, email, or phone call asks you to update, check, or verify your account information, do not follow the link provided in the message itself or call the phone numbers provided in the message. Go to the company’s website to log into your account or call the phone number listed on the official website to see if something does in fact need your attention.
  • Do not open any attachments unless you are expecting the file, document, or invoice and have verified the sender’s email address.
  • Scrutinize all electronic requests for a payment or transfer of funds.
  • Be extra suspicious of any message that urges immediate action.
  • Confirm requests for wire transfers or payment in person or over the phone as part of a two-factor authentication process. Do not verify these requests using the phone number listed in the request for payment.

Only together can we achieve safety, security, and confidence in a digitally connected world.

References:

  1. https://www.fbi.gov/investigate/cyber/national-cybersecurity-awareness-month
  2. https://www.fbi.gov/investigate/cyber

Emotional Well-Being: Be at Peace

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“If you are depressed, you are living in the past, if you are anxious you are living in the future, if you are at peace, you are living in the present.” Lao Tzu

Being at peace with yourself simply means that you have an ability to focus on your natural emotions of joy and feelings of calm. But, what is peace. Peace is not the absence of conflict; instead, peace is the presence of joy, kindness, love, generosity, patience and self control. It’s about being in the present.

Often, we undermine our inner peace and joy by failing to be grateful and thankful for whom we are, for what we have, and for what we have accomplished. We painstakingly compare our real day-to-day lives with the “highlights of life” depicted and embellished on in social media posts.

Marketers and advertisers constantly have you feeling that you haven’t got enough and that you are inadequate. But, it’s important to realize that you do not have to listen to everything entertainment media or your inner thoughts say. You are not your thoughts and you’re not the marketers or advertisers victim. You are in control of the things that you can control, like muting or turning off the constant media sales and marketing pitches of a better and more exciting life.

Often, we create unnecessary struggle because we believe that wherever we are is not already good enough in its own way. We focus on doing more, having more, and being more so much that we imply to ourselves that we are not yet good enough.

Being able to accept the balance between continuing to learn and grow while accepting your present life’s journey right where you are will dramatically increase your inner peace and joy.

Peace is valuable because it brings together many things that are important for our well-being, such as joy, emotional well-being, health, and fulfillment. Essentially, peace is the quiet joy and contentment of being who you want to be.

Accept the peace of the present moment and release the misgivings of the past and worries of future.

References:

  1. https://thejoywithin.org/increase-happiness/how-to-be-at-peace-with-yourself
  2. https://www.spiritbutton.com/peace-of-mind-quotes/#ixzz78AftX3se

Own Your Net Worth and Cash Flow

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8 out of 10 women will be solely responsible for their financial well-being. Some women will be ready. Many won’t. UBS Wealth Management Report

As women’s life expectancies increase and the rate of divorce for individuals over age 50 continues to climb, more women will find themselves solely responsible for their own current and long term financial well-being.

UBS Wealth Management embarked on research–Own Your Worth–to explore women’s thoughts and feelings, the challenges they faced, lessons they learned and advice they would impart to other women.

With the wisdom of hindsight, nearly 60% of widows and divorcees regrettably wish they had been more involved in long-term financial decisions while they were married, according to UBS’ findings. A full 98% of them urge other women to become more involved early on.

Unfortunately, too many women ignore the advice of widows and divorcees. In direct contrast to the advice, many married women are taking a lesser role in managing the household finances. In a counterintuitive twist, Millennials are the most willing to leave investing and financial planning decisions to their husbands.

Fifty-six percent of married women still leave investment decisions to their husbands, according to UBS. Surprisingly, 61% of Millennial women do so, more than any other generation. What’s more, most women are quite content with their backseat role when it comes to investing and financial planning.

UBS’ research reveals many reasons for women’s abdication, from historical and social precedents to family, gender roles and confidence levels.

So. why do women minimize their role in major financial decisions? According to USB’ research, the reasons vary:

  • Gender roles run deep – Gender roles are ingrained from early in life and often prove hard to shake. In many cases, married couples are simply imitating the gender roles they witnessed growing up.
  • Men are still the breadwinners – Within families, 70% of men are the main breadwinners, in part because of the gender pay gap and the career breaks women take to raise children.
  • Time constraints are challenging – Whether married or not, women have many demands on their time. They take on the majority of household duties, including childcare and chores, as well as paying bills and tracking spending.
  • Competence vs. confidence – Together, history and society have conspired to affect women’s financial confidence. Both women and men think men know more about investing, and women are less confident than men in making major financial decisions. Women consistently underestimate their own abilities while overestimating what is required to be financially involved.

Yet, most study respondents participated in some financial decisions while married, from handling cash flow and bills to saving and investing. Regardless of their level of engagement, however, most agree it wasn’t enough. The research shows:

  • 59% of widows and divorcees wish they had been more involved in long-term financial decisions
  • 74% don’t consider themselves very knowledgeable about investing
  • 64% of widows blame themselves for not being more financially involved (53% of divorcees)
  • 56% of widows and divorcees discover financial surprises
  • 53% would have done fewer household chores to find more time for finances
  • 79% of women who remarry take a more active role

USB recommends three actions to take today

The advice from women who have been there is clear: The time to become involved in your family’s present and future financial well-being is today, not when some unforeseen events happen in the future.

Women are encouraged to get involved in their financial well-being as a form of self care, much in the same way you would take care of your health by:

  1. Owning your worth – Know where you stand and what you want for the future. Take the time to add up your assets and liabilities, like loans, credit and other debts, and ask for full transparency from your partner.
  2. Finding your voice – Start the conversation with your partner. Talking about money is considered taboo to some couples, particularly before they are married. But if you found yourself alone tomorrow, do you know what you’d do to make sure you’re financially secure? There is a tremendous benefit to having open communication about money with a trusted confidante.
  3. Setting an example – Model financial partnership for your family and loved ones. According to our survey, women are repeating the gender roles they saw growing up. As you begin taking a more active role in your finances, you can set an example of financial partnership for the younger generation.

Though women are aware of their increasing longevity and the financial needs associated with it, most tend to focus their efforts on short-term financial responsibilities such as managing the household’s day-to-day expenses and paying the bills.

In contrast, taking charge of long-term financial decisions, such as investing, financial planning and insurance, can have far more impact on their future than balancing a checkbook.

By sharing decisions jointly, both women and men can face the future with optimism—and set an example of financial partnership for generations to come.

Almost 60% of women do not engage in the most important aspects of their financial well-being: investing, insurance, retirement and other long-term planning. USB Wealth Management Report

References:

  1. https://www.ubs.com/content/dam/WealthManagementAmericas/documents/2018-37666-UBS-Own-Your-Worth-report-R32.pdf
  2. https://www.ubs.com/us/en/investor-watch/own-your-worth/_jcr_content/mainpar/toplevelgrid_1797264592/col2/teaser/linklist/link_2127544961.2019551086.file/PS9jb250ZW50L2RhbS9XZWFsdGhNYW5hZ2VtZW50QW1lcmljYXMvZG9jdW1lbnRzL293bi15b3VyLXdvcnRoLXJlcG9ydC5wZGY=/own-your-worth-report.pdf