Is Basic Income the answer to a new AI world?

I am so glad that I am a retired senior. I don’t have to worry about a robot taking my job. Since I have lots of time on my hands to think, I wonder what a new AI world would look like. For example; will my 2 year old granddaughter even need to get a driver’s licence? Will the Uber or cab that she orders even come with a driver?

Now I have always been a big fan of science fiction movies. There is a scene in the movie “Logan” where Wolverine has to dodge driver-less trucks to cross the highway to help some people. Installing AI in 16 wheeler trucks could replace the need for a lot of truckers.

Fast food restaurants have been the training ground for teenagers and young adults.  I used to tell my kids that they better get a good education or you will end up using the phrase “would you like fries with that” while working at MacDonald’s. However, even MacDonald’s are installing new self-serve kiosks. Now you can even order your Starbucks coffee using your phone. Where will young people get work experience?

Everywhere I look, jobs are slowing disappearing, the new AI technology seems to have very few limits.

“For example, Australian company Fastbrick Robotics has developed a robot, the Hadrian X, that can lay 1,000 standard bricks in one hour – a task that would take two human bricklayers the better part of a day or longer to complete.”

Japan has the highest percentage of people over the age of 60 and their population is shrinking. As a nation, there is a shortage of workers and they have embraced the use of robots in the work place. This trend could be coming to North America sooner than you think.

As a baby boomer, I worry about the future cost of health care. The world population is aging and health care costs are raising. I hope that science fiction turns into reality and my caregiver looks something like this.

   or this 

Why universal basic income may be necessary

A 2013 study by Oxford University’s Carl Frey and Michael Osborne estimates that 47 percent of U.S. jobs will potentially be replaced by robots and automated technology in the next 10 to 20 years. Those individuals working in transportation, logistics, office management and production are likely to be the first to lose their jobs to robots, according to the report.

For many, basic income sounds like a free ride or welfare. Economist believe that masses of people will not just sit at home but will make a contribution by continuing to work. The basic income would allow recipients to explore other options not available to them if they are struggling just to survive,  such as retraining or to find new job opportunities.

In theory, new opportunities would spring up to replace jobs done by machines. However, there are some practical problems, like where will government get the money if less people are working to pay for a basic income program? The North American education system would require a major overhaul to put more job training skills into the curriculum.

Some additional information to consider

The government of Ontario just announced a three year basic income pilot project to help low income earners in three cities. A single person can apply to receive $16,889 a year and couples will receive $24,027. Recipients who are employed will keep what they made from their jobs but their basic income would be reduced by half their earnings. For example, a single person earning $10,000 per year from a part-time job would receive $11,989 in basic income ($16,989 less 50 per cent of their earned income), for a total income of $21,989.

Is basic income just a pipe dream or a future reality?

 

 

 

 

 

Hidden fees can destroy your retirement dreams

When asked about contributing to a company’s pension plan, my standard answer was always put in enough to receive the company’s matching percentage. Never turn down free money, it’s like receiving a yearly bonus of 2% or 3% of your annual salary.

However be aware of fees that are hidden in the fine print. Make no mistake, these fees do matter. They may seem tiny, barely noticeable but they can eat away your future. A one percent reduction in fees can add an additional 10 years to your retirement income. If two people have the same 7 percent return over time but one pays 1 percent in fees while the other pays 2 percent, the latter will run out of money 10 years earlier.

For nearly 30 years, the pension plan industry wasn’t legally required to explain exactly how much it was charging investors. Sadly, a recent industry survey showed that 67 percent of Americans believe they pay no fees in their 401(k) plan. In a recent survey in Canada, 36% of Canadians claimed that they paid no fees and 11% were unsure.

In a muddy but legal arrangement, a high percentage of plan providers accept payments from the mutual funds they offer in your 401(k) plan. This is called revenue sharing or, more aptly, paying to play. Naturally, the list you have to choose from includes the funds that pay the provider the highest amounts, rarely the best performing and certainly not the lowest in cost.

Additionally, many providers restrict low-cost funds to plans that exceed a certain amount of assets, meaning that employees of smaller companies are forced to invest in funds with higher fees. Since the providers don’t make much of a profit on the lower-cost funds they do offer, they will usually charge a significant markup. For example; you could be paying a 1 percent annual fee for an S&P 500 Index fund when the actual cost is .05 percent. That translates into a 2,000 percent markup.

“Last year the Obama administration announced that hidden fees and backdoor payments were costing Americans $17 billion per year. And that’s not counting the excessive “out-in-the-open” fees that are draining our retirement accounts. The Department of Labor is also sounding the alarm. “The corrosive power of fine print and buried fees can eat away like a chronic illness at a person’s savings,” said Labor Secretary Thomas E. Perez.

A company pension plan is a wonderful savings vehicle when it’s efficient. The problem is that many of these plans are plagued with a variety of additional hidden layers of fees. These added layers have seemingly arbitrary labels, such as “asset-management charges” or “contract asset charges.” They often add up to 1 percent or more and are buried in the fine print of plan disclosures.

New regulations for advisors

Beginning in April 2017, a financial professional who makes investment recommendations to you about your 401(k) or IRA will be legally required to provide advice that is best for your situation, not the funds that provide the most compensation to the advisor. “The advisor will now be required to disclose their conflicts of interest.” This new fiduciary standard will only apply to retirement accounts, and advice provided about other types of taxable investment accounts will not be held to the same standard.

Employers need to wake up and take their role as pension plan sponsors more seriously. It’s in their power to dramatically impact the future quality of life for their employees.

My advice;  put in enough to receive the company’s matching percentage and read the fine print before making any additional contributions to your company’s pension plan.

2nd Anniversary of Smart Money: Lucky number 2

In sports, no one cares who came in second. The number 2 rating of a stock is a buy. There are two sides in investing, you can be either bullish or bearish.  Number 2 in Chinese Culture is an auspicious number because Chinese people believe that good things come in pairs.

“The symbolic meaning of number Two is kindness, balance, tact, equalization, and duality. The number Two reflects a quiet power of judgment, and the need for planning. Two beckons us to choose. The spiritual meaning of number Two also deals with exchanges made with others, partnerships (both in harmony and rivalry), and communication.

2 number

What is the 2nd best investment that you can make?  The number two  investment really depends upon your age, where you live, your risk tolerance, your income level, your time horizon and your family situation. The number two investment choice for someone in their 20’s could be paying down debt. For someone in their 30’s, it could be buying a house.  For a high income earner, it could be maximizing their contributions into their retirement account. For someone who lost their job, it could be starting a small business.

So what is number one?  My answer is YOURSELF because our education system gets a failing grade regarding financial literacy. All these choices requires some financial knowledge and some basic math skills in order to be successful. I was shocked at the results of a recent financial literacy test.

Would You Pass the Global Financial Literacy Test?

Question 1: Suppose you need to borrow 100 U.S. dollars. Which is the lower amount to pay back: 105 U.S. dollars or 100 U.S. dollars plus three percent

Question 2: Suppose over the next 10 years the prices of the things you buy double. If your income also doubles, will you be able to buy less than you can buy today, the same as you can buy today, or more than you can buy today

Question 3: Suppose you have some money. Is it safer to put your money into one business or investment, or to put your money into multiple businesses or investments?

Question 4: Suppose you put money in the bank for two years and the bank agrees to add 15 percent per year to your account. Will the bank add more money to your account the second year than it did the first year, or will it add the same amount of money both years?

Question 5: Suppose you had 100 U.S. dollars in a savings account and the bank adds 10 percent per year to the account. How much money would you have in the account after five years if you did not remove any money from the account? (a) $150 (b) more than $150 (c) less than $150

 

literacy

Highlights of the survey:

  • The U.S. lags behind other major English-speaking economies in its percentage of financially literate citizens. Citizens of Canada and the United Kingdom beat the U.S.
  • Only 35 percent of respondents around the world got the right answer to Question 3.
  • Many homeowners can’t calculate the basic interest owed on their loan payments. About a third of adults in the U.S. have an outstanding housing loan; three in 10 don’t understand how their debt accumulates.

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Answers to the literacy test

  1. 100 U.S. dollars plus three percent
  2. the same
  3. put your money into multiple businesses or investments
  4. more money in the second year
  5. (b) more than $150

Some may argue that personal financial literacy isn’t the number one investment because you can always pay a professional. I would agree if you are lucky enough to select a good one. In twenty years of running a small business, I changed accountants three times. I changed stock brokers countless times until I became a do it yourself investor. I have dealings with three different banks to meet all my financial needs. Plus selecting the right professional still takes some financial knowledge, the ability to understand the advice and act on it.

In reality, the first and best investment that you should make is in educating yourself. Did you get take the financial literacy test and did you answer all five correctly?

You need more than money to have a pleasurable retirement

9th hole

Having worked as a financial advisor, my main focus in retirement planning was building a sizable nest egg for clients’ to enjoy their golden years. I used to think that the senior who greeted me at Walmart, rang in my groceries or served me coffee needed the extra income in retirement. Did something gone wrong with their retirement plan or did they just fail to save enough to enjoy a life of leisure?

However, I am starting to think that these seniors may also be bored. Imagine, you have been traveling at 100 miles an hour at work and now have come to a dead stop in retirement. No one really prepares you for the shock of getting up in the morning with no place to go. What do you do with all that extra time?

Step One: Avoid the retirement shock, start to plan ahead

There is more to life than your work. Most of your work friends will slowly disappear once you retire. Having a social network outside of your work place is a key to a pleasurable retirement. A common mistake is not developing a balanced lifestyle before you retire. (All work and no play!)

One of my business associate retired at 63 and decided to start to play golf. He join a golf club and found that he didn’t really enjoy playing golf. He hated winning the most honest golfer award. (A prize for the worse score)

Here are a few networking opportunities to make some new friends prior to retirement:

  • Over 55 sports leagues, baseball, basketball, hockey …..
  • Racket, curling and golf clubs
  • Bowling & dart leagues
  • Church groups
  • Alumni groups – high school, college and sport teams
  • Being a scout leader for boys or girls
  • Coaching or being a mentor

If you don’t have any hobbies yet, I suggest that you plan to get some before you retire. Sitting on a beach under an umbrella drinking margaritas sounds great but you will get bored after a while. You may not have the time right now but many schools offer adult learning classes. A friend of mine took a class on how to fix small engines. It is never too late to learn something new and it might just keep your brain from turning to mush.

Step Two: Retirement is a life changing event, prepare to change

Married couples have to adjust to being together 24 /7 which can add stress to your relationship. It’s a good idea for couples to have different hobbies and interests. Spending some time apart makes for more interesting dinner conversations. For example, I like to golf and my wife enjoys genealogy.

Household chores can be a thorny issue. Sharing or dividing these tasks will depend on your individual skill levels. My wife does most of the cooking but I will do most of grocery shopping and together we maintain the lawn & gardens. I recommend scheduling your household chores to be done during a weekday, save your nights and weekends for socializing.

Avoid becoming a couch potato, it is a sure way to shorten your retirement years. A regular exercise program should be part of your everyday routine. You don’t have to go to the gym and lift weights to stay fit. There are many simple ways to keep active; walking, cycling and swimming, just to name a few. If you have a partner, find something that you both enjoy doing, having someone to workout with can help you get off the couch.

Step Three: Take on new challenges

Learn to play a musical instrument, speak a second language or better yet give back to the community. There are many fine organizations that are in desperate need for volunteers. You have a wealth of experience, professional expertise and invaluable personal wisdom that shouldn’t go to waste. You have a lot to offer, find things that you are passionate about.

In my case, playing football was a strong positive influence in my life. In honor of all my football coaches, I spent six wonderful years coaching kid’s football.

When people ask me what I do all day, I tell them; “I am so busy in retirement that I was surprised I found the time to work”! Remember, variety is the spice of life.

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The Fed wants to see wage growth but is the annual raise dead?

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Did the “Great Recession” kill the annual raise and replaced it will variable compensation – the annual bonus? Base salaries are often a company’s major fix cost of doing business and can be a drag on corporate profits during recessions. In a perfect world, variable compensation allows companies to align corporate and worker incentives, it rewards high performers and hard workers. It also allows companies to pull back on employee costs during hard times without resorting to layoffs.

In reality, switching from raises to bonuses has mucked up a lot of things. For starters, it’s hard for an employee to make long-term financial plans with such short-term financial commitments from their employer. It’s nerve-wracking to take on a 30-year mortgage if your income is $100,000 this year but might be $80,000 next year.

Managers are caught in the middle, they feel the need to give something to everyone. In some cases, managers believe that the bonus is not related to performance but part of the employee’s salary. Ultimately, less money goes to the top performers and the poor performers are getting more than they deserve. This more humane approach throws a big monkey wrench into the big cost saving idea behind bonuses. Many corporations are having trouble holding on to their best employees.

The Towers Watson survey found that 40 percent of firms said turnover is rising, and 52 percent said they are having difficulty retaining “critical-skill” employees, compared to 41 percent last year. You’d think the solution to the problem of “talent mobility” would be relatively easy to solve — more pay.

Is it just my imagination or has corporate culture become more greedy? When did employees become liabilities instead of assets of the company. The captain of the corporate ship is getting well compensated for sub par performance by his bubbies sitting in boards room. Corporate boards are suppose to protect shareholders but they are allowing  financial engineering (share buybacks) to mask poor performance.

Are you prepared for your annual job review? I would recommend making a list of possible job perks that you may want if  your bonus or wage increase is lower than expected. You may want to read, Money Tip: Ask for Job Perks, to get some ideas on what to ask for.

A personal experience: As an owner of a small business, I have sat on the other side of the desk. I found the whole employee job review process to be very stressful.  The most uncomfortable experience that I had was seeing a grown man cry during his job review. He was not only older than me but had more industry experience. He expected to be fired but I decided before the tears to give him a second chance. In the end, we were both winners. 

 

Why I Quit Being a Financial Advisor

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It is times like these that I am so glad that I quit being a financial advisor. Never in a million years, did I believe that  investors would see negative interest rates. Diversification is less effective in protecting your investment portfolio. Sometimes stock markets all over the world will fall in value at the same time. I really don’t miss the phone calls that I would be getting from clients every time there is a correction.  “Sorry, Mr. Client but I can’t make the stock markets go up for you.” (Hand holding isn’t my strongest suit)

One of the most frustrating part of the job was setting up achievable financial plans that were simply ignored. It is maddening when you put a plan together for a client to pay down the mortgage and come back a year later to find out that the client just booked a Caribbean cruise for the whole family. “Sorry, Mr. Client but that wasn’t in the plan.”

Some people just can’t be sold on putting a budget together, having a financial plan and investing their savings. They would rather spend time keeping track of standings and game scores of their favourite sport teams than tracking their monthly expenses.

The main reason for quitting is 80% of mutual fund managers don’t beat their benchmark index. Low cost index funds and exchange traded funds are more readily available today for investors to construct their own investment portfolio. Plus the internet has all kinds of free financial information. Investors have access to the same technology that financial advisors use to deliver services to their clients.

Lastly, asset allocation doesn’t work in this low-interest rate environment. Allocating some money into a fix income product will produce negative returns for clients. Bond mutual funds & bond ETF’s will lose money when you factor in the cost of  fees, taxes and inflation.  So basically, the mutual fund company and your advisor will get paid to lose  money.

Do you need to  pay an advisor $2,000 to $5,000 a year for peace of mind?

  • Do you need someone to reassure you during market corrections to stay on course?
  • Someone to remind you regarding deadlines (retirement contributions, education plans)?
  • To review and help make adjustments to your financial plan?
  • To assist in evaluating the financial pros & cons to major life changing decisions?
  • To help you understand complex financial investments?
  • Do you lack the discipline to do it yourself or just don’t have the time?

In my humble opinion, over the long-term, paying for peace of mind can be very expensive. No one will care more about your money than you. I recommend paying for legal advice for wills & estate planning or tax advice from an accountant.  However, buyer beware, just because an advisor has passed the required number of courses doesn’t make them a good advisor.

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Disclaimer: I have a very bias opinion on paying for investment advice, there are some very good advisors but there are also some bad!

 

Money & Life Lessons from My Immigrant Father

war

In honour of Father’s Day, this post is dedicated to my father who left this earth way too soon. You may find some of these money lessons in this post out dated but I hope that it will  inspire you to make some positive changes in your life.

The first life lesson that I learned from my Italian father is “Life is not fair!” In 1939, my father was forced to serve in a war that he didn’t believe in. He was only 18 years old at that time and was lucky to have survived. He rarely talked about his war experiences except that he ate potato peels that he found in the garage because he was so hungry.

Life after the war in Italy must have been horrific for my father to come to Canada, leaving his pregnant wife to earn some money. I can’t imagine going to another country with no marketable skills and not being able to even speak the language. He found that the streets of Toronto were not paved in gold. Two years later, my mother & I left Italy with only a suitcase and a few dollars in our pockets. A whole new meaning to “Desperate times requires desperate measures!”

I am amazed that within four years my parents who were illiterate, with no education, manage to save enough money to buy a house. They earned extra income by renting a portion of our house for many years to assist with the mortgage payments. My mother used her sewing skills to earn extra money making bridesmaid and wedding dresses.

As a kid, I never played in the backyard because it was turned into a vegetable and herb garden. It never occurred to me how much that garden help reduced our family’s grocery bill until much later in life.

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Homemade food products that also reduced the grocery bill:

  • Pasta sauce – we still make a year’s supply of pasta sauce every September
  • Pasta – my mother’s ravioli & cannelloni would make even top chefs envious
  • Pizza dough / pizza
  • Cured meats – ham, bacon, salami …etc.
  • Sausages
  • Wine & sometimes vinegar
  • Preservatives – jam, peaches, peppers, pickles…etc.

sauce

My father had a background in farming back in Italy and would often purchase some meats directly from local farmers to save money. Chickens, rabbits, pigeons and quails found their way into a large chest freezer and later on to our dinner table. For years, my father raised his own rabbits in the garage. (Rabbit is still one of my favourite meals)

Other ways that my father saved money:

  • Avoided eating out, told people that restaurant food made him sick
  • Always took a bag lunch to work – thermoses full of leftovers & coffee – ate by himself to avoid ridicule from his co-workers
  • Paid cash – never own a credit card
  • Rarely borrowed money – only from family and always paid them back
  • Car pooled to work
  • No pets, in his opinion, a total waste of money
  • Restricted vacations to going back to Italy to visit family
  • Limited his entertainment to visiting friends & relatives (plus weddings of course)

When I was in high school, my father got me a high paying summer job at the industrial plant where he worked. He stressed that doing the most boring, dirty and repetitive jobs well would guarantee that I would get rehired next summer. Following his advice, I ended up working at the same plant all through high school and university, graduating debt free. (After three summers, I was put in charge of an all student afternoon shift)

My father taught me that it is easy to excel in jobs that you enjoy but surpassing expectations doing lousy jobs can have its benefits. In my opinion, the real irony was the work experience from my summer job was more valuable in running my own small business than my university education. An argument that I never won with my father even after his plant shut down and he had to come to work for me. “You will always have that piece of paper to fall back on!”

Considering that my father was a teen during the Great Depression and then drafted into World War II, he enjoyed the simple things in life to the fullest. Despite all his hardships, he was proud to own the roof over his head. He really enjoyed sharing a home cooked meal with his friends, along with a glass or two of  his homemade wine. To honour all the sacrifices that he made, I followed a old Italian tradition and named my son after him.

wine   Salute Papa!

 

HAPPY FATHER’S DAY