Panic at Orlando airport spoiled my golfing trip

Golf season in Canada can be very short because of bad weather. One of my guilty pleasures is heading south for an annual golf trip with the boys every November. We started this tradition sixteen years ago and I would have to be very ill to miss it.

As a volunteer driver, I experienced first-hand the panic at the Orlando airport while dropping off a friend after our last round of golf. We decided to go early so we could have   dinner together at the airport. Walking in, we faced a stampede of frighten travelers running and screaming to the exits.

Some travelers thought they heard gun fire while others thought that they heard an explosion. Standing outside watching the Orlando Police conduct their investigation with weapons drawn was very alarming.

It turns out that a camera battery exploded in a bag which cause people to panic and the airport to be evacuated. Thousands of travelers faced hours of waiting at security checkpoints.

Phil Brown, CEO of the Greater Orlando Aviation Authority, said a full ground-stop was issued at 5:30 p.m. and lasted until 9 p.m. At a press conference Friday night, Brown said 24 flights were canceled and 27 others were diverted. He acknowledged that some passengers will have to book new flights, and others might struggle to find hotel rooms for the night.

He added that some airport staff and TSA agents instructed the crowd to take cover, when the initial explosion created confusion among staff and passengers.

At first glance, it may seem that the Orlando Aviation Authority may have over reacted to a faulty camera battery. However, it happened on the same day that Americans celebrate veteran’s day.  Plus no one wants to read about children getting hurt after visiting Disney World.

I felt bad for my friend who ended up sleeping at the airport as his flight was cancelled and rescheduled for 2:30 p.m. the next day. I was lucky that my early morning flight was cancelled and I got some extra sleep. It made delays in my rescheduled flight a little more bearable.

Will this unfortunate incidence stop me from going south golfing? Not a chance, however I may decide to spend a few extra days driving instead of flying.

The moral of this story is managing risk extends beyond the financial markets. Panic and over reaction can easily cause a major sell off in stock markets. You can’t predict what will cause a stampede to the exits.

 

 

 

 

 

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Scary Financial Facts for Halloween

 

It’s that time of year when scary things come out on Halloween. However, when you open your door on October 31, will you be confronted by anything scarier than these hair-raising financial horror stories?

Will debt destroy your future?

  1. Student loan debt has reached $1.45 trillion dollars in the U.S. and $42.9 billion in Canada. U.S. graduates owe on  average of $37,712 and $27,000 for Canadians.
  2. Credit card debt is increasing in both countries. Americans carry an average of $16,000 and $4,100 for Canadians
  3. 107 million Americans have auto loans for a total outstanding debt of $1.2 trillion. It is estimated that 40% of the 120 billion dollars in auto loans in Canada are financed for 7 years or longer.
  4. Mortgage debt in Canada is a bigger problem than the U.S. because mortgage interest is not tax deductible. Average mortgage in Canada is around $200,000 (much higher in cities like Toronto & Vancouver) and $192,000 in the U.S.

Will someone steal your identity? 

First we find out that the Yahoo hack in 2013 exposed the information of every single one of their 3 billion accounts and then we find out that a data breach at Equifax exposes the personal information of 145.5 million people. Is there a single American who hasn’t been hacked yet?

The odds are great that your personal information is for sale to identity thieves or already in their hands. Can you foil them with credit freezes and other ID protection measures before it’s too late? Is it already too late? Does your VISA card contain mysterious purchases for 10 large screen TVs from Best Buy?

U.S Health Care Nightmare

Who knows what horrors await you if you become sick and your insurance premiums are too high for you to afford? Average out-of-pocket medical costs continue to rise, topping $10,000 in 2016. Meanwhile, premiums continue to rise on the health care exchanges.

Over the past four years, premiums in the individual marketplace have more than doubled. As insurers back out of some markets and political uncertainty reigns, premiums on the state insurance exchanges continue to rise rapidly. For example, rates in Georgia are up by 57%.

Scary lack of retirement savings

According to a report from the Economic Policy Institute (EPI), the mean retirement savings of all working-age American families, which the EPI defines as those between 32 and 61 years old, is $95,776. Almost 40 million households have no retirement savings at all.

Only 65% of Canadians are saving for retirement and on average have about $84,000 in retirement accounts. (RRSP & TFSA)

Frightening Canadian Energy Policies

  1. No access to foreign markets for oil & gas (besides the U.S.)
  2. Cancellation of Energy East pipeline (buying oil from the Middle East, selling discounted oil to the U.S.)
  3. Construction delays in Trans Mountain & Keystone XL pipelines
  4. No accountability for carbon tax revenue (how is this money spent?)
  5. 4 billion dollars of extra interest payments for reduced hydro rates in Ontario

Release the Nukes

What list of potential horrors would be complete without the prospect of nuclear war? The current tense relations between the U.S. and North Korea make that horrible concept more plausible and in addition to the terrible death toll and destruction of property, the financial impact on the world economy would be hard to imagine.

Remember the famous quote of Albert Einstein, “I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones.”

Now remember the leaders who have their fingers on their respective nuclear buttons. ARE YOU FRIGHTENED YET?

HAPPY HALLOWEEN!

 

My 200th post: Investing in the Second Machine Age

As a retired senior, I am having difficulty adjusting to ” the Second Machine Age”. The advances in technology are mind blowing. I would never have guessed that self-driving cars in science fiction movies like “Minority Report”  or “I Robot” could become available in my life time.  How about Elon Musk’s vision of offering a rocket ride of only 30 minutes to get to London from L.A., is that just science fiction or a potential reality?

China, the world’s biggest vehicle market, is considering a ban on the production and sale of fossil fuel vehicles in order to reduce pollution and boost the production of electric vehicles. The move would follow a similar ban by France and Britain but they have included a 2040 timeline. However, China has introduced draft regulation to compel vehicle manufacturers to produce more electric vehicles by 2020 through a complex quota system.

Some possible investments to consider

  1. Millions of dollars are pouring into the Global X lithium & Battery ETF (LIT). It has had a massive gain in value of 58% so far this year. It has also attracted short sellers who are betting on a pullback in price.
  2. For stock pickers, the top ten holdings of LIT include five U.S. listed companies, ticker symbols Tsla, FMC, SQM, ENS and ALB. A word of caution, some of these stocks have very high valuations and can be very volatile.

There is little doubt in my mind that advances in digital automation, robotics and artificial intelligence will change your living standards over the next decade. Just think how companies like Facebook, Amazon, Netflix, Google and Apple have already influence our lives during the past decade.

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.

Some possible investments to consider to capitalize on this trend

  1. Robotics and Automation ETF (ROBO) which contains three U.S. listed companies in their top ten holdings. Ticker symbols, AVAV, HOLI and CGNX
  2. Global X Robotics & Artificial Intelligence ETF (BOTZ) which contains three U.S. listed companies in their top ten holdings. Ticker symbols: NVDA, ISRG and TRMB
  3.  Semiconductor ETFs like SOXX or SMH which include companies that provide key components for self-driving vehicles, automation, robotics and artificial intelligence. The top ten holdings of these ETFs are places to look for individual names that could outperform the overall market.

There is also an interesting book that I am thinking about buying.

Synopsis: According to the authors, the book has three sections.

  • Chapters 1 through 6 describe “the fundamental characteristics of the second machine age,” based on many examples of modern use of technology.
  • Chapters 7 through 11 describe economic impacts of technology in terms of two concepts the authors call “bounty” and “spread.” What the authors call “bounty” is their attempt to measure the benefits of new technology in ways reaching beyond such measures as GDP, which they say is inadequate. They use “spread” as a shorthand way to describe the increasing inequality that is also resulting from widespread new technology.
  • Chapters 12 through 15, the authors prescribe some policy interventions that could enhance the benefits and reduce the harm of new technologies.

You can also search you-tube “The second machine age” to listen to the authors speak. 

 

Disclaimer: Do your own research, these investment ideas can be very volatile. 

Risk Tolerance Questionnaire

Take a piece of paper and write down the letter that best describes you for each question. Remember that risk tolerance is largely subjective, so there is no right or wrong answer.

Life Stage

  1. What is your current age? 
    a) 65 or older.
    b) 60 to 64.
    c) 55 to 59.
    d) 50 to 54.
    e) Under 50.
  2. When do you expect to need to withdraw cash from your investment portfolio? 
    a) In less than 1 year.
    b) Within 1 to 2 years.
    c) Within 2 to 5 years.
    d) Within 5 to 10 years.
    e)Not for at least 10 years


Financial Resources

  1. How many months of current living expenses could you cover with your present savings and liquid, short-term investments, before you would have to draw on your investment portfolio? 
    a) Less than 3 months.
    b) 3 to 6 months.
    c) 6 to 12 months.
    d) More than 12 months.
  2. Over the next few years, what do you expect will happen to your income? 
    a) It will probably decrease substantially.
    b) It will probably decrease slightly.
    c) It will probably stay the same.
    d) It will probably increase slightly.
    e) It will probably increase substantially.
  3. What percentage of your gross annual income have you been able to save in recent years? 
    a) None.
    b) 1 to 5%.
    c) 5 to 10%
    d) 10 to 15%
    e) more than 15%
  4. Over the next few years, what do you expect will happen to your rate of savings? 
    a) It will probably decrease substantially.
    b) It will probably decrease slightly.
    c) It will probably stay the same.
    d) It will probably increase slightly.
    e) It will probably increase substantially.


Emotional Risk Tolerance

  1. What are your return expectations for your portfolio? 
    a) I don’t care if my portfolio keeps pace with inflation; I just want to preserve my capital.
    b) My return should keep pace with inflation, with minimum volatility.
    c) My return should be slightly more than inflation, with only moderate volatility.
    d) My return should significantly exceed inflation, even if this could mean significant volatility.
  2. How would you characterize your personality? 
    a) I’m a pessimist. I always expect the worst.
    b) I’m anxious. No matter what you say, I’ll worry.
    c) I’m cautious but open to new ideas. Convince me.
    d) I’m objective. Show me the pros and cons and I can make a decision and live with it.
    e) I’m optimistic. Things always work out in the end.
  3. When monitoring your investments over time, what do you think you will tend to focus on? 
    a) Individual investments that are doing poorly.
    b) Individual investments that are doing very well.
    c) The recent results of my overall portfolio.
    d) The long term performance of my overall portfolio.
  4. Suppose you had $10,000 to invest and the choice of 5 different portfolios with a range of possible outcomes after a single year. Which of the following portfolios would you feel most comfortable investing in? 
    a) Portfolio A, which could have a balance ranging from $9,900 to $10,300 at the end of the year.
    b) Portfolio B, which could have a balance ranging from $9,800 to $10,600 at the end of the year.
    c) Portfolio C, which could have a balance ranging from $9,600 to $11,000 at the end of the year.
    d) Portfolio D, which could have a balance ranging from $9,200 to $12,200 at the end of the year.
    e) Portfolio E, which could have a balance ranging from $8,400 to $14,000 at the end of the year.
  5. If the value of your investment portfolio dropped by 20% in one year, what would you do? 
    a) Fire my investment advisor.
    b) Move my money to more conservative investments immediately to reduce the potential for future losses.
    c) Monitor the situation, and if it looks like things could continue to deteriorate, move some of my money to more conservative investments.
    d) Consult with my investment advisor to ensure that my asset allocation is correct, and then ride it out.
    e) Consider investing more because prices are so low.
  6. Which of the following risks or events do you fear most? 
    a) A loss of principal over any period of 1 year or less.
    b) A rate of inflation that exceeds my rate of return over the long term, because it will erode the purchasing power of my money.
    c) Portfolio performance that is insufficient to meet my goals.
    d) Portfolio performance that is consistently less than industry benchmarks.
    e) A missed investment opportunity that could have yielded higher returns over the long term, even though it entailed higher risk.

Scoring

Give the following points for each answer: a = 1, b = 2, c = 3, d = 4, e = 5

Interpretation of Results

If your Life Stage Score is: If your Life Stage Score is: Then your Investment Time Horizon is:
1 to 3 Short-term (5 years or less)
4 to 6 Intermediate-term (5 to 10 years)
7 to 10 Long-term (over 10 years)
If your Investment Style Score is: Then Your Investment Style is:
5 to 10 Very conservative
11 to 20 Moderately conservative
21 to 30 Moderate
31 to 40 Moderately Aggressive
41 to 50 Very aggressive

 

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?

 

 

 

 

 

Still doing tax returns for my adult children & their spouses

Every year I ask myself, should I continue to offer to do tax returns for my adult children and their spouses? All of them have university degrees and are smart enough to file their own tax returns. My daughter was willing to do it one year using tax preparation software with only a little help from me.

Part of my problem is Canadians are not even aware of how much tax they pay. Plus we keep voting for governments that buy votes using our tax dollars. The average Canadian family will pay 42.9% of their income in taxes imposed by all three levels of government in 2016. (Federal, provincial and local) Tax freedom day was June 7, 2016 if Canadians paid their total tax bill up front. Our U.S. neighbours tax freedom day was April 24th and they will only pay 31% of their income in taxes.

There are a number of reasons why I continue to offer to do tax returns for the whole family. Having worked as a financial advisor, tax planning is a key element when putting a financial plan together. My tax knowledge and skill comes from working many years with accountants and tax lawyers ensuring that my whole family pays the least amount of tax.

Plus, the Canadian tax system is very complicated and is constantly changing with every federal and provincial budget. For example: many tax credits that were given by the Conservative government have been taken away completely by a new Liberal government.

For the 2015 tax year, the Liberals cancelled income splitting for families, a maximum tax credit of $2,000 for transferring up to $50,000 of income to a spouse with a lower income if they had a child under 18 years of age.

Some changes for 2017 include the elimination of the following credits:

  1. Education and textbooks credit
  2. Children’s fitness credit
  3. Children’s arts credit
  4. Public transit tax credit

Now, most retired Canadian seniors who don’t have a pension from their former employer are not even aware of a $2,000 pension credit. It requires opening a RRIF account, transferring $2,000 from their RRSP and then taking it out. They don’t have to wait until they reach the age of 71 in order to open a RRIF account. Plus, RRIF income can be split with your spouse if both of you are 65 years of age which could potentially add up to $4,000 of income tax free per year.

The Federal Liberal government will introduce a new budget on March 22 and there are rumors of more tax increases. Three things that Canadians should worry about;

  1. Higher capital gains inclusion rate from 50% to 75%
  2. Reducing the dividend tax credit
  3. Taxing your principal residency 

I will end this post with two well known proverbs. ” In this world nothing can be said to be certain, except death and taxes.” & “A penny saved is a penny earned.”