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We’re entering into a new financial era

central banks inflation investing

The financial markets aren’t unlike every other aspect of society. They go through eras. In baseball, there was the dead-ball era, and then the live-ball era. In sports cars, there was the hot-rod era. In movies, there was the film-noir era, etc., etc., etc.,

Well, the same goes for the financial markets, too. Back in the 70s, we all remember the era of high inflation and uneven growth — yes, the dreaded era of stagnation (which, by the way, many economic observers are hoping we can avoid today!). Recently, since about the 1990s, we’ve had an era of very low interest rates, which led to growth, but also to some bursting of economic bubbles.

Catching up with inflation

Central banks inflation markets

Now, according to Mohamed El-Erian, chief economic adviser of financial services for Allianz, we’re entering into a new era: one in which the world’s central banks are trying to play catchup with inflation rates that are topping 8% or more, by increasing interest rates to levels not seen since, you guessed it, in past eras.

In this new era, according to El-Erian, bubbles are no longer a worry. However, what is worrying is the extent to which central bank can deal with in inflation. On the plus side, says El-Erian, the rather undisciplined times involved with near-zero interest rates are over. On the flip side, however, is the question of how much more disciplined central banks have become, whether it’s been enough, and what can be done in the near future.

Opportunities always exist

El-Irian believes that there are three tests to determine if central banks, such as the US Federal Reserve, are dealing with inflation properly. The first is whether financial conditions have tightened. He says yes. The second is whether the tightening has been orderly. He says it’s been “slightly disorderly.” And the third and final test is whether the banks are getting ahead of inflation instead of reacting to it. On this score, El-Irian believes things have to change.

Of course, the effect that inflation has had on investment markets has been significant. However, as has been a point of emphasis on these pages, even in tough or uncertain markets, successful investors can always meet or exceed their investment objectives if they create a sound plan with reasonable objectives and don’t overreact to market uncertainty.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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Commentary

How psychology impacts investing

mental accounting

One of the recurring themes on these pages is the notion that investors shouldn’t get caught up in the daily highs and lows of the markets. Successful investing involves setting long-term goals and objectives that should be adhered to regardless of the emotions of the day.

Well, if you think this kind of advice and need for discipline in investing is something I’ve made up, think again. In fact, there are entire academic fields dedicated to studying how psychology impacts the economy, finance and investing. And what it all points to is this: how people should behave with money and investing isn’t always what they actually do. I know, that’s a shocker, isn’t it?

Studying financial behaviour

Welcome to the field of behavioural finance, which studies how people’s psychology, and specifically their biases, can affect their portfolios, as well as the economy as a whole. And there’s one specific sub-field within behavioural finance, called mental accounting, which sheds some light on how personal psychology affects financial and investing decision making.

Specifically, according to mental accounting, people attach subjective factors to the way they value money and, consequently, on the decisions they make with that money. For example, people will spend their money differently based on how it was obtained. If it was through hard work, they might be more careful in how they spend it. If they won it in the lottery, they might be more frivolous on how they spend it. History is replete with such examples.

Reason versus emotion

Yet, if one were to take a completely rational and unemotional view towards money, which all smart investors should do, there is no difference between money that  is worked for and money that is won. It’s the same amount of money, and should be distributed based on factors that have nothing to do with attainment. In other words, all money is the same, but the process of mental accounting has us treating it differently.

Therefore, the conclusion to be drawn is what we’ve been preaching here for many months: Don’t let your psychological emotions get in the way of rational long-term investing. It could be the difference between reaching your investment objectives and falling short. Even the academics say so.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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Capital gains as part of the basics of investing

understanding capital gains

When it comes to investing, some believe that learning the complexities of the market allows for greater success. However, often, that doesn’t have to be the case. In fact, the simpler one can make investing, the better it can be understood and put to good use. Capital gains is a good example.

Indeed, capital gains is a concept that some investors simply take for granted. But you might be surprised at how misinformed some people may be on the topic. For example, here in Canada, one often hears about the 50-percent number for capital-gains taxation.

What gets taxed, and what doesn’t

Believe it or not, some think this means that capital gains are taxed at a rate of 50 percent. That’s why there’s often an outcry at the 50-percent number, because it’s thought that half of the profits are taken away. Of course, this is not the case.

How capital-gains taxation actually works in Canada is that half of the gains are subject to being taxed — within your personal income-tax bracket.

Let’s use a quick example. Let’s say you buy an investment property for $1 million. Five years later, you sell it for $1.5 million. That’s a capital gain of $500,000, correct? In terms of tax, you don’t pay $250,000, or 50-percent of your capital gains. Instead you take 50-percent of the capital gain, which is $250,000, and apply your tax bracket to that amount.

The difference it makes

So, in Ontario, if you’re in the highest tax bracket of 53.53 percent, you would pay a capital-gains tax of $133,825, which is 58 percent less than what many people think, and the tax savings could be larger if you’re in a lower income bracket or can use capital losses to offset the gains.

Some of this may sound simple. But, if you don’t understand some of the basics in investing, your foundation for success is not as strong as it should be.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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The investment school of hard knocks

investment millennials

There has been a lot of talk about millennials over the past number of years. And, clearly, the age cohort tends to get characterized by a certain type of stereotype: millennials are spoiled, they don’t know what life is really like, previous generations have had it tougher, etc. However, when it comes to investing, the stereotype, even if exaggerated, might serve as a teaching moment.

The need for life lessons

Specifically, according to David Lafferty, senior vice president of Natixis Investment Mangers, and as reported by CNBC, the experience millennials mostly have of investing involves the last number of years, and this period has essentially been a bull market. As a result, Lafferty believes that such investors have never experienced the inevitable bear markets that happen over time and, consequently, don’t get to experience first-hand what risk is really like.

Think about it for a moment. It’s one thing to say all the right things when it comes to investing: that you have to think about the long-term, and ups and downs will always happen. But, if you’ve never really experienced a serious downturn in the markets, does the lesson really stick?

The human touch

And, according to the same article, what’s adding to the potential problem are automated investing services, or so-called robo-advisors, that make automatic decisions for investors, including millennials. While such services certainly make investing easier, in some ways they miss the point of investing entirely.

In order to become a good investor, one actually has to learn how to invest, instead allowing others, or other things, to do it for you. That’s not to say that people shouldn’t hire investment firms, or deploy robo-advisors under the right circumstances. But even an automated solution needs human wisdom behind it. So, the use of any help in investing should also come with personal observations and judgement.

That’s why living through investment downturns, on top of any real-world investing experience you can get, can provide some real-life learning to develop the long-term outlook needed to meet your financial objectives.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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Commentary

There’s no magic formula for investing

investment formula

Some people might think that there is a formula out there on how to invest successfully. And, clearly, there is no shortage of people who claim to have one. On the other hand, there is also a list of people who have used their own investment formulas successfully.

However, the fact of the matter is that there is no one way to invest successfully. If there was, someone would sell it, wouldn’t they. The reality is that successful investing involves many different factors, including knowledge, experience, judgement, information, networking and many other variables. So, it’s not necessarily a matter of figuring out one way of how to assess all these variables, but to learn as you go along, including learning from others.

A broader view of the markets

For example, if there is perhaps one most salient point to remember when it comes to investing, it’s to focus on the long-term. As any decent investor should know by now, markets go up and down, but the value of objective-reaching portfolios usually goes up. And when we talk about long-term, sometimes we’re talking about decades. So, reading market websites on a daily basis is not the sole road to investing success. A much broader view of the markets is needed.

Another piece of wisdom to keep in mind is to stay disciplined — on a number of fronts. Sometimes investors sell or buy simply for the sake of doing something when doing nothing would have been better. Sometimes investors make decisions on whether they like a company or its owner, or not, and that’s not necessarily the best way to invest, either. This probably isn’t the first time you’ve heard this, but investing shouldn’t be an overly-emotional endeavour. It should be done with reason, calculation and patience — always.

Learning instead of reacting

These are just a few insights into how to invest successfully, but the point is that they’re just that: insights. Some investors are more aggressive, some are more patient. But they all tend to exhibit some of the traits listed above because they learn about the nature of the markets instead of reacting to them.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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Why alternative markets thrive

alternative investing

There’s an old saying: the road to hell is paved with good intentions. It’s a harsh statement, but it does reflect the fact the results of our actions aren’t always as intended. There’s perhaps no better example of that than in the financial markets.

Recently, Benjamin Tal, who is deputy chief economist with CIBC World Markets, stated in a paper he wrote that recent restrictions in Canada’s mortgage lending industry — specifically, the B-20 mortgage stress test —  has resulted in unintended consequences, such as the rise of the alternative lending market. This echoes other warnings from other sources that the stress test is squeezing Canada’s mortgage and housing sectors.

Addressing supply and demand

Let’s take a step back to assess the situation. Canada has had an alternative mortgage lending sector for quite some time. It was established decades ago to try and increase private investing in mortgages. Yet, even before the current stress tests, this market has been on the rise. Why? Because, it could be argued, the traditional lending practices of the banks have been somewhat restrictive.

Now, let’s turn to the investing sector, which has followed a somewhat similar path to the mortgage sector. Traditionally, most people who wanted to invest did so through the public markets, such as stock markets, investing in traditional securities, such as stocks and bonds, that come with strict disclosure regulations, such as a prospectus.

The freedom to grow

However, this model was not satisfactory to a growing number of investors that wanted to seek higher returns than found in these traditional public markets. Hence, the rise of alternative and private investing in which the regulations and disclosure requirements are relaxed under certain conditions. This meant that investors who wanted to take greater responsibility over their portfolios could do so in order to meet more demanding investment objectives.

So, is there a lesson in all of this? Yes. The lesson is that the alternative markets, whether in mortgages or investing, exist for a reason. They thrive when governments, banks and regulators don’t provide the kind of room for growth and investment that the free markets allow for.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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Commentary

Why financial literacy matters

investment knowledge

We are currently approaching the end of April, which is Financial Literacy Month in the United States. In Canada, it’s in November. The fact that there is something called Financial Literacy month is telling. It means not enough people know enough about financing to benefit their lives, but at least there appears to be an awareness of the problem.

Addressing the basics

For example, what is the cornerstone of how an economy works? It’s supply and demand, right? Prices are established by the amount of demand for a product in relation to its supply. This is Economics 101, isn’t it. But, for the most part, it isn’t required learning in any course at any level of education, and often isn’t taught until you take elective courses later in high school or in college or university.

This is just one example, but it highlights the challenge we face as a society to learn about one of its most important aspects: finances. So, if we don’t know the basic principles of how prices are established in society, what else aren’t we learning about the realities of the world?

People know there’s a problem

If you look at any survey on the topic, people know they don’t know enough about things like finances, and especially investing. And it hurts people because it means they don’t have as much money as they can have to spend on things like an education, a house, or even a vacation. The less we know about finances, the less opportunities we have in our lives. That’s just a fact.

Indeed, increasing financial and investing literacy in society benefits everyone. As investors, we should want people to know more about how to save and invest. It means that the level of knowledge and information increases so that we can all make better decisions to improve our finances and meet our investment objectives.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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Commentary

Avoid looking at your portfolio

looking at your investment portfolio

Most people have heard of an investing tip. This often involves getting some info on a stock that is considered a “sure bet.” Other tips involve general strategies on how to invest or how to approach the markets. However, as explained by Michael Batnick of Ritholtz Wealth Management during an appearance on CNBC, there’s a very simple tip that most investors can follow that would benefit their portfolio: Don’t look at your portfolio too much. That’s it.

Short-term distractions

But Batnick’s logic is very simple. He says that the more an investor looks at their portfolio, the more likely they are to see losses, which may adversely affect their investment decision-making. And the numbers appear to back up his claims.

If you check your portfolio on a daily basis, there is a 46-percent chance of seeing negative turns. If you only check the portfolio once a month, the likelihood of a negative return goes down to 36 percent, and if you have the “hutzpah,” as Batnick puts it, to look at your portfolio only once a year, the chance of seeing a negative return goes all the way down to 26 percent.

Long-term objectives

Now, as simple as this may all seem, there are two conclusions to draw from this information. First, the amount of times you look at portfolio has nothing to do with how it performs. That should be made clear from the outset. Short-term losses happen, but they even out over the long-term. However, what this information does point out, and is the second conclusion to draw, is that the outlook one has towards an investment portfolio is crucial.

In fact, this is something that we keep stressing on these pages over and over again. Investors should not fall into the trap of listening to the day-to-day panic machine of the public markets. Markets go up. They go down. Regardless of what we do. It’s just a matter of setting long-term investing strategies that meet objectives — and sticking to them. That way, you don’t have to look at your portfolio everyday and worry needlessly.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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Do-it-yourself investing?

investment planning

The world of investing has certainly changed over the years, especially when it comes to access and culture. There used to be a time when people of a certain wealth with a certain background would have stockbrokers to help them manage their investment assets. The idea of, say, a factory worker or a plumber having an investment portfolio would have seemed strange back then.

But times have changed, haven’t they? Or have they? There certainly has developed over the years a greater amount of access to investing with the public at large. From discount brokerages to do-it-yourself online investing, the opportunities for everyone to invest on their own have never been greater.

Doubts about investing

However, according to a recent survey conducted by TD, Canadians in general are still very anxious about doing investing on their own, and are lacking in the confidence and knowledge needed to do so.

Specifically, one in three surveyed say they don’t know the basics of investing,  almost 40 percent of people not confident in investing never seek out resources to learn about investing, but 65 percent said they’d like to be able to invest for retirement, 36 percent want to purchase a new home, and 23 percent want to save for an education.

So, what does this information tell us? Well, it tells us that people want to use investing for a lot of good purposes, but they’re just not sure of how to go about doing it. So, how does this gap get addressed?

Going beyond yourself

The first solution is that people should always try educate themselves about finance and investments. There is no shortage of resources on that front. It’s just a matter of having some confidence to take that first step.

However, as much as personal knowledge and investment is important, let’s face it, not everyone can be an investment expert, although they should still be able to benefit from investing. As a result, potential investors shouldn’t be afraid to seek professional investment help, whether it’s in the form of an advisor, planner, counselor — you name it. Combining your own learning with that of a trained professional can often be a formula for long-term investing success.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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Commentary

Looking beyond media narratives

Wall Street Survey

If you’ve read these pages over the last few months, you’d know that one prevailing theme is to take the Trump phenomenon with a grain of salt. There is a lot of hysteria surrounding his entry into politics, and it’s the job of investors to separate the hysteria from the facts. And, according to a survey conducted by RBC Capital Markets, it would appear as though Wall Street has been taking our advice, or something like that.

Wall Street weighs in

Specifically, over 70 percent of investment professionals surveyed by RBC believe Donald Trump will be reelected as President of the United State. As simple a result as that is, what can be gleaned from it is considerable. First, that number, 70 percent, is considerably more than any presidential approval rating you can get your hands on, the highest of which usually has the president at 50 percent approval, if that.

So, what does this gap between investment professionals and lay-people mean? Well, it means that the investing world makes it their business to separate media hysteria from real-world fact. And, according to real-world facts, the investing world has had a much more positive view of Trump’s impact on investing, and the economy, than average people have.

The facts speak for themselves

And, if you look at what’s actually happened in Trump’s over two years in the White House, the investor class has been proven right, hasn’t it? Trump hasn’t made the world burn. He hasn’t destroyed the economy. Heck, he isn’t even guilty of Russian collusion despite undergoing one of the most massive investigations of presidential conduct in the history of humankind.

This doesn’t mean that investing professionals necessarily love Donald Trump. According to the same survey, they believe former Vice President Joe Biden will have the most positive impact on the world of investing among all the possible Democratic Party presidential candidates.

So, when it comes to being a discerning investor, it’s not about being caught up in media popularity contests. Instead, investors should always looks at the facts as impartially as possible. Remember, it’s about getting the best return on your investment dollars. It’s not about getting headlines in the media.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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