What should an investor do about Brexit?

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Many of the worst investment mistakes I’ve seen have originated from an overreaction to the unknown. We have all witnessed substantial global upheaval in the past. Many of us have had a window seat to watch how Wall Street responds to uncertainty and turmoil. The financial markets don’t like uncertainty. Why? Because it’s extremely difficult to try to predict the future.

For instance, what will happen to all of the trade deals that are in place? What impact would this have on corporate profits? What about the bond markets, or the debt that is tied to the European Central Bank? Long term, will other EU countries follow Britain’s example? The list of questions goes on and on.

Far too many money managers placed huge bets on Brits staying within the EU. They all have egg on their faces. Now there is a rush to exit these positions causing market volatility. Their repositioning responses will not been good for your portfolio.

It has always been my philosophy that slow and steady wins the day. So what should you be doing to protect your life savings from the Brexit vote to leave? Actually, you probably shouldn’t be doing much at all. If you are properly diversified with limited exposure to any one country, you should probably sit tight for now.

Here is a four-point strategy to help investors:

  1. Don’t react by selling anything. To be sure, there will be some fear in the European markets, but this would not be a good time to react to that fear. This is an emotional component of behavioral finance, and history has shown that those investors who sell in the midst of a crisis usually end up doing so at the wrong time. They wind up selling low and buying high.
  2. Look for buying opportunities. The best time to purchase things on sale is when nobody else wants them. There may be some tremendous opportunities to purchase distressed assets, because many investors have given into fear and are running scared.
  3. Analyze how much of your portfolio is at risk. Most investors don’t have all of their portfolio in risky assets. Figure out how much of your portfolio is actually tied to risky areas and how much is reasonably safe. Odds are, if you are a well-diversified investor, you don’t have a high percentage of your portfolio tied to the European financial markets.
  4. Relax! We’ve experienced changes before, and sure enough, we will see more changes in the future. Most cannot be predicted. While changes of this magnitude can be worrisome, I urge you to fight through your fear.

Simply put, a well-diversified portfolio should protect you from most of the worst aspects of any volatility we may experience.

Moms rule and Dads drool: Happy Father’s Day

Sorry dads, but more money is spent on Mother’s Day than Father’s Day. The National Retail Federation expects Father’s Day spending to reach $12.7 billion. That sounds like a lot of money, but it doesn’t stack up to what was spent on Mother’s Day: $21.2 billion. There are a number of factors that contribute to making Father’s Day a lesser commercial holiday when compared to Mother’s Day.

Let’s face it, the majority of Moms prepare the family meals, so it is easy for restaurants to promote giving Mom a break from cooking by offering a Sunday brunch special. I asked the food & beverage manager at my golf club why they did not offer a Sunday brunch for Father’s Day. Her answer; “We tried it but had to cancelled due to lack of interest”. By the way, the mother’s day brunch is sold out every year.

Father’s day spending is now competing with Memorial Day, graduation and of course, June is prevalent for weddings. It is easy for children to justify spending less on dad who is laid back enough to be okay with receiving a smaller gift. Plus buying for Dad is tricky: Mom is probably going to appreciate flowers and chocolate more than Dad is going to dig his Daffy Duck novelty tie.

The most popular Father’s Day gift: quality time, it costs nothing.

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But Dads do matter: they really have an important role to play

Human beings are social animals and we learn by modeling behavior. In fact, all primates learn how to survive and function successfully in the world through social imitation. Those early patterns of interaction are all children know. It is those patterns that effect how they feel about themselves and how they develop.

Fathers are central to the emotional well-being of their children; they are capable caretakers and disciplinarians. Children who are well-bonded and loved by involved fathers, tend to have less behavioral problems, and are somewhat protected against alcohol and drug abuse.

Studies show that if your child’s father is affectionate, supportive, and involved, he can contribute greatly to your child’s cognitive, language, and social development, as well as academic achievement, a strong inner core resource, sense of well-being, good self-esteem, and authenticity.

How fathers influence our relationships.

Girls will look for men who hold the patterns of good old dad. If father was kind, loving, and gentle, they will reach for those characteristics in men. Girls will look for, in others, what they have experienced and become familiar with in childhood. Because they’ve gotten used to those familial and historic behavioral patterns, they think that they can handle them in relationships.

Boys on the other hand, will model themselves after their fathers. They will look for their father’s approval in everything they do, and copy those behaviors that they recognize as both successful and familiar. Thus, if dad was abusive, controlling, and dominating, those will be the patterns that their sons will imitate and emulate. However, if father is loving, kind, supportive, and protective, boys will want to be that.

As a father of two, a boy and a girl, I have accepted the fact that Moms will get a lot more attention than Dads. It doesn’t mean that your children love you less. Your reward comes from knowing that your sons or daughters will be successful academically, become well-adjusted members of society, be in loving relationships and have good careers. Hopefully, they will eventually become good parents.

This post is dedicated to my Dad who was done too soon and to my son who has begun his journey as a great Dad.

 

 

 

Is Globalization or is Technology destroying more jobs?

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Could last Friday’s weak U.S. job numbers help make this man president of the United States?

Many Americans believe that China and Mexico are responsible for their job losses. There is no doubt that some industries like apparel & electronics require cheap labor costs and companies have moved production overseas. I also believe that the majority of illegal immigrants (Mexicans) are working at low paying jobs that Americans don’t want. (Even Canadian farmers hire temporary workers from Mexico during planting & harvest season).

Economists around the world believe that globalization has more benefits than detriments. Long term, higher wages in poor countries should theoretically increase spending and help spur global economic growth. Wages in China are going up causing a slowdown in their manufacturing boom. In fact, some illegal immigrants are moving back to Mexico because of higher wages.

Advances in technology has created a large number of new jobs but many of those jobs are unfilled. The major problem is employers find it difficult to find workers with the appropriate skill levels. The education system is really behind the curve in preparing young people to enter the job market. No real surprise that the participation rate is falling as the unemployed are giving up looking for work.

The automotive industry has been well-known for its intensive use of robotic arms for assembly, welding and painting of cars. Many other industries have adopted robotic arms into their manufacturing process. Advances in automation has eliminated an estimated 30% of all manufacturing jobs. Developments in 3D printing could allow consumers to make a variety of products beyond just toys, jewelry and novelty items.

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Technology has destroyed a number jobs in many sectors. It is obvious that on-line shopping has really hurt brick & mortar retailers. Retailers have cut full-time staff and reduce costs by hiring more part-time seasonal personal. A large number of book, music and video stores have simply disappeared. Netflix and other low-cost streaming services has really hurt jobs in media, cable and the music industry. Facebook and Google have captured the majority of advertising  dollars which has reduced revenue and job opportunities in radio, television and print media.

Have you ever wondered why there are so many fake reality shows on cable? Production costs are so much cheaper than producing quality programing. Networks have less ad revenue to paid wages for real actors, writers and directors.  

Thanks to ATMs, internet banking, direct deposit and mobile banking apps, bank branches don’t have as many tellers or people waiting in line. The rise of Robo-Advisors will further reduce bank staff over time. I wouldn’t be shocked to find a decline in the number of bank branches in the near future.

Smartphones have reduced the need for buying cameras, voice recorders, camera film, photo albums, alarm clocks, GPS’s, video cameras, calculators, flashlights, landline phones, watches, calendars, note pads, newspapers, books and even credit cards. I wonder how many jobs have been lost because of the popularity of smartphones.

The oil and gas industry used to drill five wells in order to get one producing well. Today’s drilling technology enables 100% success rate in finding oil and gas. Plus fracking technology has allowed oil companies to maximize oil and gas extraction.

Will future improvements in artificial intelligence enable robots to replace human workers?

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What do you think, Globalization or Technology to blame for job losses.

 

Why not go crazy and spend some money, you’re earned it?

devil & Angel

After working for decades, my retirement plan will finally allow me to enjoy life with few worries. It is so tempting to buy that luxury car, travel to some exotic destinations or remodel our home. Why not spend the money, I earned it and people say that can’t take it with you.

On the other hand, the financial meltdown of 2008-09 was scary, it reminds me that unexpected events could disrupt our travel plans and lifestyle choices. Life has thrown me a number of surprised curve balls over time so I remain cautious.

Surprise Curve Ball No. 1: Ailing parents

The Canadian Alzheimer society estimates that one out of five Canadians provide some form of care to seniors with long-term health problems. What if your parents need nursing or assisted living care and they don’t have the money to pay for it. Unfortunately, elder care is not cheap and costs vary depending upon where you live. (Surprise, my elderly mother has been diagnosed with early stages of dementia.)

In my area, estimates for a private room in a nursing home is around $50,000 per year and you need to apply two years in advance just to get in. An alternative would be to hire a live in caregiver if your parents own their own home. I am not a big fan of using a reverse mortgage to pay for a caregiver but all options should be investigated.

Another option that may lessen the financial impact on your retirement nest egg is to determine if it makes more sense for you to become the caregiver. One of my friends, will an ailing mother-in-law, used an agency to hire a full-time live in caregiver from aboard. Since his children had moved out, he had two spare bedrooms, one for care giver and the other for his mother-in-law. He was lucky that all his wife’s siblings agreed to share the extra costs.

 

Surprise Curve Ball No. 2: An adult child falls on hard times.

There are a variety of reasons why a child may need some financial aid. Most common are marriage breakdown, job loss, poor saving habits or bad decision-making. There is a disturbing trend for adult children to move back in with their parents. The media refers to them as Boomerang kids.”

Parents always want to help their children out of trouble. It helps to know how much money you can afford to give before it wreaks havoc on your retirement plans. Before making any decisions, determine how long you can provide any financial assistance and make it clear to the child up front that your financial aid can only last for a certain period of time. If they move back in, give them a moving out date. (Both my adult children have solid careers and stable marriages, so far so good!)

The risk of joining the sandwich generation is increasing

The new reality is low-interest rates over the past decade and talk of negative rates in the future could escalate the number of seniors requiring financial aid from their children due to illness. Your parents are living longer, 1 in 3 seniors are dying from Alzheimer’s and Dementia. Your children are getting married much later and are deeper in debt.

I recently emailed a follow blogger if he was planning to apply for social security at 62?  His answer: Still working, my youngest will be in college”

Sometimes you just have to be aware what is happening within your extended family. Here are two posts that could be of help.

Talk to your Elderly Parents about Money

Bank of Mom & Dad, Cutting the Purse Strings

Don’t be troubled if you have to put a limited on financial aid to your family. It’s okay to look after yourself first.