(Un)Realistic Investment Expectations - Part 3 - Misinterpreting Historical Data

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- By Mike Fortunato, CIM®, FCSI®

 

This is the third and final installment dedicated to unrealistic investment expectations. In the last installment, we discussed how misunderstanding financial jargon can be both a cause of an investor’s unrealistic investment expectations, and an obstacle impeding communication between an advisor and their client. Today, I’d like to highlight some common flaws in how many investors use historical information to formulate performance and risk projections, which is another cause of unrealistic investment expectations.

 

Misinterpreting Historical Data

Most investors look to the past for clues when trying to forecast future performance. Although I agree that historical data can teach us a lot about the future, I want to caution investors about some of the more common mistakes that are made when forecasting. It is important to remember that markets and the economy move in cycles. Generally speaking, all cycles have two things in common: a rising-cycle is followed by a falling-cycle, and, a falling-cycle is followed by a rising cycle. This might seem elementary, however, in my experience, most investors ignore this natural fact, and instead assume that the current trend will last forever. I’ve even had many conversations with investors who claim to be aware of fact that markets move in cycles, but then continue basing their long-term projections as if the market moved in a straight line. Many advisors further complicate this misunderstanding by lazily citing market statistics without highlighting the fact that those statistics are actually averages of cyclical data. 

undefinedThe key to avoiding this fallacy is to always analyze full cycles when considering past data, and if possible, consider multiple cycles. The past can give us some great clues as to what the future might hold, but we need to make sure we are looking far enough in the past when gathering our data to formulate our projections. A realistic forecast understands that there will be cycles in the future, as there were in the past. And unrealistic forecast presumes that the current phase of the cycle will last forever. Investors need to remind themselves that every bull market eventually leads to a bear market, and vise versa.

Two related miscalculations many investors also make are:

  1. Only considering past bull markets when forecasting future return. This will often lead to overly optimistic projections.
  2. Only considering past bear markets when forecasting future risk. This will often lead to overly pessimistic projections.

It is important to highlight that I don’t think investors are naive; I would actually argue that they are acting quite logically given how long it can take for a trend to reverse. Market cycles can often take years or decades to reveal their full periodicity. In fact, some slower, cyclical economic phenomenon take so long to unfold that text books on the subject are written, published and taught to finance students only to have the phenomenon reverse or change as those students enter the workforce. Investors are also bombarded daily with news and media that tends to focus on the short-term picture and sensationalize outlier events. In light of all these distractions I can totally understand why many investors formulate unrealistic market expectations. Again, this is where great advisors can really make a difference in helping a client focus on the past data they are ignoring. 

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I hope I’ve been able to illuminate what I believe are two major causes of investor’s unrealistic investment expectations: Financial Jargon & Misinterpreting Historical Data. There are many other potential causes of unrealistic expectations beyond these two; I actually plan on devoting future posts to the discipline of Behavioural Finance, which studies cognitive and emotional biases that cultivate irrational behaviour in investors. Advisors need to remember that although investors often have unrealistic investment expectations, there are perfectly logical reasons why those expectation arise. When advisors take the time to educate their clients, they are usually quick to temper and evolve their forecast. Good advisors know that having a solid investment strategy is worthless if their clients are not willing to stick with it for the long haul. Also, clients are not going to stay invested in strategies that are not compatible with their expectations. That is why great advisors understand that the key to long-term success lies in harmonizing their clients’ expectations with their own. As we already mentioned, investors are typically logical, and usually just lack some foundational wealth management principles. By taking the time to educate their clients, advisors can leverage their clients’ logic and encourage a natural alignment in their views towards having more realistic investment expectations.

 

(Un)Realistic Investment Expectations - Part 2 - Financial Jargon

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-  By Mike Fortunato, CIM®, FCSI®

In the last installment, we discussed how many investors have unrealistic investment expectations.
Today we are going to examine what I believe to be the major causes of their outlook.


Financial Jargon

Finance, like any professions, has its own set of jargon that its practitioners employ. The list of
acronyms and other exotic sounding terms is almost endless; however, fancy sounding words &
phrases are rarely the source of confusion for investors. After all, when an advisor uses a word a
client is unfamiliar with, the client can easily ask him/her to explain the meaning of that word. I
believe the majority of confusion comes from the fact that finance jargon also repurposes many
common words & phrases we use in everyday life. This can create a lot of confusion for non-advisors
because words & phrases they use colloquially, might mean something completely different in the
finance world. This is more often than not exacerbated by lazy advisors who neglect to make the
distinction between jargon and colloquial language when conversing with investors. My favourite
example is the word, “risk” or “risky”. We all have a sense of what this means in everyday language,
but in the finance world, there are at least four definitions of risk (and probably a lot more) that impact
investors’ investment plans. They include: probabilistic risk, short-fall risk, absolute risk, and
variability or volatility risk. All of these types of risk are important, but in my experience, investors are
usually referring to the first three types of risk, while advisors are most often referring to the last type
– volatility risk. The end result is that both parties are talking about completely different things while
simultaneously thinking they are on the same page. To an outside observer, the idea of two people
having a full conversation, using different definitions for the same words, may seem funny, but the
situation is much less humorous to the people actually having the discussion, especially for the party
whose retirement account is at risk (pun intended).


“Risk”, isn’t the only regular English word with a unique definition in finance jargon. Here are a few
more words that are commonly used (that mean different things) by both advisors and investors: “risk-
free”, “consensus”, “annual return”, and “price”. Even the concept of “loss” and “gain”, are often
miscommunicated/misunderstood when advisors fail to elaborate on what they actually mean or
truncate the more appropriate phrases of “paper-loss” & “paper-gain”.


Words are just sounds we make with our mouths - what really matters is the definitions we all agree
correspond to those sounds. A sentence can have a radically different meaning if you change the
definition of just one word. Those differences matter a lot when the discussion is about formulating a
strategy. Finance jargon is designed to pack a lot of information into a short word or phrase, so the
onus is on the advisor to ensure their client is comprehending their message.


In light of the fact that some of the most commonly used phrases in finance have both multiple
meanings and different usages (normal and jargon), it isn’t a surprise that many clients have an
unrealistic view of potential risk and reward. My advice to advisors is to always remain cognizant of
the fact that clients are unfamiliar with finance jargon: especially when the particular jargon is a
homograph for more commonly used words. Great advisors should strive to empower their clients
with knowledge, and the tools to think critically in a financial context. It will always be much easier to
have a client temper their own unrealistic expectations than it is to debate them into changing their
mind about concepts they don’t fully understand.

There is so much to say about finance jargon, that I plan to dedicate an entire future post to common
phrases I mentioned above. In the next installment of this article, I plan to illuminate another factor
that has contributed to investors’ unrealistic investment expectations: flaws in how we analyze past
performance & risk. Until then, I’d like to end with a quote. A wise man once said, “Lorem ipsum
dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore
magna aliqua.”, and I still don’t know what he was talking about!

(Un)Realistic Investment Expectations - Part 1 - Three Types of Investment Risk

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-  By Mike Fortunato, CIM®, FCSI®

Everyone intuitively understands that investing for the future is a good idea, but when it comes to setting realistic investment expectations, people’s intuitions vary wildly. An investor’s expectations are key axioms which form the foundation for a solid financial plan. When expectations are overly optimistic, the stage is set for a future disappointment, and conversely, when expectations are overly pessimistic a goal may appear out of reach, and not worth pursuing. A good advisor should know what is realistic when it comes to potential future risks & rewards. And a great advisor is able to explain why certain expectations are or are not realistic rather than simply telling the investor to trust them. Only when both the advisor’s and investor’s expectations are aligned are they able to move forward with a strong financial plan. That is why one of the most important jobs an advisor has is setting realistic investment expectations for their client. Although this sounds simple and straight forward, in practice, this is one of the most challenging role an advisor has.

Every week I help investors formulate and execute financial plans to reach their goals, and in my experience, the majority of clients I work with come to me with unrealistic investment expectations. More often than not, clients are not willing to change their expectations without some debate. Here are some examples of unrealistic investment expectations:

  • “I want my investments to grow a lot, but I don’t want to risk losing anything.”
  • “I want a safe investment, but it has to return over 10%.”
  • “I want to see 10% return every year, year after year.”
  • “I’m willing to invest for aggressive growth, but if it doesn’t materialize in a short amount of time I will pull the plug.”

It is obvious why investors cling to these expectations, after all, if they actually believe these scenarios are possible, why would they want to settle for less. Here are some examples to illustrate my point - which would you choose:

Scenario 1) Eating magic ice cream, that gives you rock-hard, six-pack abs, or eating broccoli and exercising for two hours each day?
And
Scenario 2) Driving to work each morning in a magic car at 200 Km/h on the 401 Highway, at rush hour, or sitting in traffic on the 401 Highway at rush hour?

If it were possible, I think most people would pick the first choice in both scenarios; the problem is that magic ice cream and magic cars don’t exist in the real world. Most people can easily see how unrealistic these scenarios are, however, most investors I work with have trouble seeing the same flaws in the examples of unrealistic investment expectations I mentioned above. This can be a real challenge for advisors as they are essentially trying to convince their clients to choose between what appears to be a riskier and inferior investment plan, over a safer and superior investment plan. Simply telling the client one choice isn’t real often doesn’t settle the debate, in fact, in my experience it can make things worse. After all, these clients already believe the magic low-risk, high-reward investment exists, so when you tell them it doesn’t exist, they actually question your expertise as an advisor. This is why you can’t simply tell the client they are wrong, instead, great advisors take time to educate their clients about the concepts of risk and reward. Once a client is empowered with this knowledge, they often revise their own expectations to be more realistic.

In the next instalment of this article I will examine what I believe are some of the major causes of unrealistic investment expectations…

 

A Smarter Way to Think About Market Corrections

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As expected, the sudden drop in both the Canadian & American stock market has caused investors to scramble to find answers to the following questions:

  1. What is causing the market drop?
  2. Is this a correction or the beginning of a prolonged bear market?
  3. Is my retirement secure?
  4. Should I alter my strategy and sell all my investments?

Fear is clearly on the rise and although these questions are simple and straight forward, there are a few reasons why I don’t think they are the best ones investors should be asking:

  • I’m not sure anyone could honestly answer questions 1 & 2. If they could, I doubt they would have time to write market commentary blogs, as they would be too busy making billions of dollars timing the worlds markets.
  • Questions 3 & 4 are better than the first two because they are concerned about strategy vs. market prognosticating, but the best time to ask these questions isn’t while the market is dropping. Instead, investors should be thinking about strategy for the long term.
  • These questions reveal a lot about the mindset of the person asking them: and that mindset is clearly reactionary and in a state of panic.
  • These questions also reveal a deeper truth about how many investors seem to focus on the things they can’t control (markets) rather than focus on the things they can control (investor best practices).

I’d like to help investors cut through all this panic, and show them what I feel is a better way to think about market corrections and investing.

There is an old saying, “corrections are healthy for the market”. This phrase is often touted as a powerful piece of wisdom coded into the fabric of the universe. I think this phrase represents everything that this wrong with how many investors think about markets and investing. Let’s break down this phrase: it claims that corrections are healthy, but what it is really saying is that from time to time the market is wrong about valuation, and a sudden change in prices, brings the market back to a more reasonable “correct” valuation. This is a terrible way to think of health. Here is a simple analogy to illustrate my point: eating junk food until you get so sick you aren’t able to eat anymore, and then calling that healthy. When it comes to food, we all understand that that junk food isn’t healthy, and true healthy behaviour would be to not eat it in the first place. Health isn’t about having visceral reactions to bad habits, but rather, health is more about having good habits that make your stronger over time. There is, however, one piece of wisdom that I feel most investors are missing here: A correction is usually defined as the market moving opposite to its prevailing trend by more than 10%. And statistically, these corrections happen about once per year. So, it is fair to say that when it comes to valuation, most of the time, the market is wrong.

Before we talk about strategy, let’s bring some perspective to the last few days of market action. Everyone saw the headlines that Friday February 2 had the 6th largest point drop in the Dow Jones Industrial Average in history. What this headline failed to mention is that this day didn’t even make the top 500th for single day declines when measured in percentage terms. As we know, the news tends to sensationalize everything, and this is exacerbated by the fact that for the last 5-6 years investors have become accustomed to low-volatility.

Let’s summarize some of the key points we’ve discussed so far:

  • The statistical frequency of market corrections means that there is always the potential that the market is mispriced at any point in time.
  • Some investors are focusing more on markets and less on long-term strategy.
  • The last week’s market action is far from sensational, historically speaking.

With all this in mind, I’d like to give investors some other questions that I think are better to focus on.

  1. Is my strategy appropriate for my time horizon?
    This question goes right to the heart of what is panicking many investors: reconciling the unknown future value of the market, with the known future liability of retirement (or some other investment objective). When it comes to markets, it is impossible to predict what will happen in the short-term future, but it is easy to analyze what has already happened in the past. And although, many investors look to the past for guidance, they are often looking in the wrong places by focusing on potential future return, when they should be focusing on potential future risk. Investors should try to understand the many different types of risks and how they impact different assets over different time horizons. Nothing can guarantee success, but this the best way to ensure you are using the best strategy to complement your time horizon.

  2. What things can be done to enhance my chances of success?
    This comes back to the idea of focusing on what is controllable vs. what isn’t controllable. If an investor’s strategy is already well matched to their time horizon, then their own behaviours might have a greater impact on their success than the markets. Investors can enhance their chances of success by focusing on things they have control over:
  • Contributing more to their strategy than they initially planned.
  • Having a large enough emergency fund that is separate from their investment funds.
  • Using insurance to protect against certain types of risks.

Investors should be asking more questions like these two above, rather than the four at the beginning of this article. Our goal shouldn’t be to predicting where the market will be tomorrow; our goal should be to meet our investment objectives. We have very little control over the direction of the market, but we have total control of our strategy and the ‘healthy’ habits that will help us get there.

Are You Suffering from Holiday Spending Hangover? Here are 2 Ways to Pay Off Your Debt

Happy belated holidays and new year’s! How were your holidays? Did you get to spend plenty of quality time with family and friends?

With the holidays behind us and January here, soon we’ll be celebrating another yearly tradition – the opening of credit card statements from the holidays. For some people, it won’t be a big deal. For other people, they’ll suffer “credit card statement shock” from the amount they spent on holiday shopping.

Are you suffering from holiday spending hangover? You’re not alone. Starting the new year with a credit card balance isn’t very fun, but don’t worry, as you’ll soon find out, there are two tried-and-true ways to reach debt freedom sooner.

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Avoiding Credit Card Debt in the First Place

Credit card debt isn’t very fun. Not only are you charged an arm and a leg in interest – 18 percent on traditional credit cards and up to 30 percent on retail credit cards – if you hope to own a home, it can make borrowing money from the bank a lot tougher. You may have to reduce your housing budget, or worse, put your dreams of homeownership on hold.

The easiest way to avoid credit card debt is to not get in debt in the first place. This means only charging something on your credit card that you can afford to pay off in full once your credit card statement comes due. If you’re already carrying a balance, there’s no need to panic, but time is of the essence. The longer you carry a credit card balance, the more interest you’ll accrue.

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The Debt Avalanche and Debt Snowball Methods

There are two popular ways to rid yourself of credit card debt: debt avalanche and debt snowball. With the debt avalanche method, you aim to pay off the debt with the highest interest rate. This makes sense since this debt is costing you the most. The sooner you get rid of it, the better.

The second approach, the debt snowball method, involves paying down the debt with the smallest balance first, while ignoring the interest rates. This makes a lot of sense as well, since it can be the most motivating to pay off debt this way.

Whichever method you choose, make sure you keep paying the minimum balance on all your credit cards and debt, otherwise you could ruin your credit score and face an even higher interest rate, along with fees and penalties.

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Credit Card Debt Example

To get a better understanding of both methods, let’s run through an example. Let’s say Lisa has two credit cards with outstanding balances. MasterCard #1 has an interest rate of 18 percent and a balance of $2,000, while MasterCard #2 has an interest rate of 28 percent and a balance of $4,000.

To pay off her credit card sooner, in addition to her full-time job, Lisa works part-time as a fitness trainer, earning $300 per week. If she were to choose the debt avalanche method, Lisa would focus on paying off MasterCard #2, since it has the highest interest rate, while paying the minimum payment on MasterCard #1.

However, MasterCard #2 has a pretty large balance of $4,000. It could take her quite a while to pay it off, so Lisa might consider the debt snowball method instead. With the debt snowball method, she would focus on paying off MasterCard #1 since it has the smallest balance. Once MasterCard #1 is paid off, she’d focusing on paying off MasterCard #2.

There’s no one right way to pay off credit card debt. It all comes down to personal preference. The most important thing at the end of the day is for Lisa to reach debt freedom sooner.

Choose the method that works for you and do what it takes to pay off your debt.

4 Top Business News Stories of 2016

Can you believe we’re in the last couple week of 2016? Where did the time go? 2016 has been quite a year in the business world. Robo-advising has really taken off as a viable investing option for Canadians. Meanwhile, in the world economy, there were two historic votes both with surprising outcomes: Brexit and the US presidential election. Let’s look back at the year that was 2016.

CRM2: A Real Game Changer

Canadians pay among the highest investment fees in the world. That could change in 2017 once Client Relationship Model - Phase 2 (CRM2) comes into full force. As of July 15, 2016, registered firms will need to provide an annual report showing fees in dollars. This will be a real eye-opener for investors. A 2.3 percent MER may not sound high, but when you find you you’re paying, say, $575, in fees a year based on a portfolio of $25,000 for a mutual fund that underperforms the benchmark, you might think twice about investing in actively managed funds. This could only accelerate the pace of money moving from mutual funds to ETFs.

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The Year of the Robo-Advisor

2016 has been yet another banner year for robo-advisors. Canadians are increasingly moving their money from traditional high-fee mutual funds (many that underperform their benchmark) to robo-advisors that offer low-fee exchange-traded funds (ETFs). Unlike traditional financial advisors with brick-and-mortar operations with high overhead costs, robo-advisors are virtual operations that operate on the World Wide Web and mobile phones. Robo-advisors are the perfect compromise between DIY investing and mutual funds. They offer simple, yet custom built investment portfolios at a fraction of the cost. Look for 2017 to a stellar year for robo-advisors as well.

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Brexit: The UK Votes to Leave the EU

The British went to a historic vote Thursday, June 23, 2016. The stakes couldn’t be higher: should the UK remain or leave the EU? The key issues for voters were immigration and independence. The polls had the Remain side ahead of the Leave side by the narrowest of margins. When the vote actually took place, it was the Leave side that came out ahead. 51.9 percent voted to leave the EU, while only 48.1 percent voted to remain. The vote’s results has divided the nation and led to an economic slowdown in one of the world’s major economies.
Even months later after the vote, we still don’t fully understand the ramifications of Brexit (or even if it will end up going through). One things for certain though, it introduced more uncertainty into the world economy at a time when we really need stability.

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Donald Trump is Elected President

If Brexit wasn’t surprising enough, we got another shocker in the form of the US election. Just when it looked like the US would elect its first female president, it wasn’t meant to be. Democrat presidential nominee Hillary Clinton had a comfortable led in the polls heading into the vote. Republican nominee Donald Trump’s campaign had lots of missteps along the way. Many people went to bed on election night expecting Hillary Clinton to win the U.S. presidency with ease, but that’s not what happened. In one of the biggest upsets in political history, Donald J. Trump defeated Hillary Clinton to become the next President of the United States.
The real question is what does a Trump presidency mean for Canada? It could end up being a good thing for at least one industry: oil and gas. However, similar to Brexit there’s a lot of uncertainty. It will be interesting to see how this unfolds in 2017 once president-elect Trump takes office.

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Setting Yourself Up for Financial Success with Goal Setting

Can you believe the holidays are almost here? Have you finished shopping for gifts yet? The holidays are a time to show family and friends how much you care about them. This is often done through gift giving. While there’s nothing wrong with buying loved ones nice gifts, the last thing you want is for your gift giving to derail your short-term and long-term financial goals and start the new year in debt. How do you avoid overspending during the holidays? By setting financial goals and sticking to them no matter what.

Financial goal setting is the foundation of financial success. Goal setting is very personal. What may be a good financial goal for me, may not be an appropriate goal for you. For example, if I have student debt, I may set the goal of paying off $10,000 in student debt this year. However, if you’re debt-free, you may set the goal of saving toward a vacation. It’s all about setting a financial goal that’s appropriate for you and being committed to seeing it through.

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Budgeting and Tracking Your Spending

At the foundation of goal setting is budgeting and tracking your spending. A budget breaks down your spending into specific categories, such as mortgage/rent, gas, groceries, clothing, transportation, and the list goes on. A budget can be an eye-opening experience. A seemingly small expense, such as spending $5 here and there are the convenience store, can easily add up to $100 per month.

Setting a budget is a good first step, but it alone won’t set you up for financial success. It’s equally important to track your spending. Tracking your spending is made easier these days thanks to budgeting apps like Mint. Some credit cards even categorize your spending, so you don’t have to, making it easy-peasy. By tracking your spending, you can make sure you’re not exceeding your budget and have money left over at the end of the month to save.

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Setting SMART Goals

While setting goals is helpful, setting SMART goals is a lot more powerful. In case you haven’t heard of SMART goal setting, it’s an acronym short for Specific, Measurable, Actionable, Realistic, and Time-bound. For example, instead of saying you’d like to save up for a home, a SMART goal would be to save a $40,000 down payment in two years.

The “R” in SMART stands for “realistic.” You want to make sure you’re able to achieve your goals. How do you do that? By working backwards from the personal goals you set. Figure out exactly how much you need to save from each paycheque in order to meet your goals and “pay yourself first.” Make savings a priority by automatically depositing a set amount each month, say $200, from your paycheque in a high-interest savings account. The money will be safe and sound in your savings account before you’re tempted to spend it.

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5 Questions to Ask Yourself About Goal Setting

Confused about goal setting? Don’t be. Here are some questions you can ask yourself to get started. Answer these questions to get a better idea about how realistic your goals are and adjust as needed.

1. When do you want to reach your financial goals?

2. How much in total will you need to save to reach your goals?

3. How much can you save from each paycheque toward your goals?

4. What sacrifices will you need to make in order to achieve your goals?

5. How will you benefit from goal setting in the future?

By setting goals, you’ll set yourself on solid financial footing and more likely to succeed in 2017 and beyond.

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5 Must-Have Money Apps For Your Phone

Smartphones have made our lives a lot easier these days. There seems to be an app for just about everything: exercise, cooking and of course, money. There are dozens of money apps to choose from and download. Some of them are good and some not so good. How do you figure out the best ones? Here are our five must-have money apps to download on your phone to start your finances on the right foot in the new year.

Apple’s Stock App

Do you enjoy picking stocks? Apple’s Stock app is a stock picker’s dream come true. The best thing is if you have an iPhone, the app is already loaded on your phone. Create a list of stocks to watch and keep tabs on them on a daily basis. The app is simple, yet robust. Easily add and remove stocks from your favorite list in seconds. If you’re looking for more information, you can click on a company’s name for charts, financial information and the latest business news.


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Mint

Budgeting is a lot like dieting. We all know we should do it, but many of us lack the discipline and aren’t willing to put in the effort. With Mint you don’t have any good excuse for not budgeting. Mint takes the effort out of budgeting. Through the magic of Mint, all your financial information is pulled from your various accounts and added to one convenient dashboard to make keeping track of your finances easier. Mint isn’t just for banking and credit cards. You can also link up and keep track of your investments. Set spending categories and alerts for when you’re about to exceed your budget, helping you better manage and keep your spending in check. You can even set a reminder, so you never miss paying another bill again.

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Bloomberg

Looking to keep up on the latest business news? You can’t go wrong with Bloomberg’s app. Keep in the known of what’s happening on Bay Street and Wall Street with this handy app. Find out what’s happening in business in major cities in Canada and in countries around the work. Bloomberg isn’t just a news app. The app’s handy portfolio tracker lets you keep track of how your favorite stocks are performing on a daily basis.

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BNN GO

BNN may be best known as the Business News TV Network, but it also has a handy smartphone app- BNN GO. Missed a segment of your favorite show on BNN? Don’t have access to a computer? No need to worry. Catch up on the latest on BNN on your smartphone. Full episodes and segments of your favorite shows are just a download away. Be forewarned the app can use a lot of data, so I’d encourage you to use Wi-Fi-, otherwise you can blow through your phone’s monthly data usage in a New York minute.

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Flipp

Looking to save money on groceries? Who isn’t? Food is the second or third highest household expenses for most families. Sure, you can clip coupons and browse advertisement flyers, but that takes time. The good news is there’s a better way. Flipp is a digital flyer app that helps save time and money on your weekly trips to the supermarket. Not only is Flipp great for finding coupons on products you normally buy, it makes creating a shopping list and planning meals a breeze. Flipp features over 800 retailers in Canada and the U.S. and the list is constantly growing. Once you start using Flipp, the savings will add up.

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Divorce and Your Money

Divorce is a lot more common these days than it used to be. 41 percent of marriages end in divorce before their 30th year anniversary, according to Statistics Canada. Fighting over money is often the top reason.
Divorces can be costly, especially the unamicable ones. The average legal fees for an uncontested divorce is $1,845, while the average for a contest one is $13,638, according to Canadian Lawyer’s 2015 legal fees survey. And those are just the legal fees. It doesn’t include the division of your assets like your investments and debts.
But getting a divorce doesn’t have to bankrupt you. Here are some things to consider.

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Who Owns and Owes What

Each couple has their own separate approach for dealing with money. Some couples are open and honest about their finances, while others keep money hidden away from their significant other. Sometimes the husband or wife will even manage the finances and the investments alone, with their spouse left in the dark.
Even if you don’t particularly enjoy budgeting and personal finance, it’s still important to have a basic understanding. If you ever get divorced, you’ll be thankful you did. You’ll be better equipped to make decisions about how assets and debts are to be divided.
Don’t just spring this on your hubby suddenly over a candlelit dinner. It’s all about finding the right time. Once you’re ready, start by figure out what your assets (what you own) and liabilities (what you owe) are. Review financial statements together to see how your investments are doing (this can be the perfect time to assess their performance).

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Everything Gets Split Up – Even Your Spouse’s Debts

Choosing the perfect partner is important. Not only do you want to tie the knot with someone who’s your perfect match, you want to find someone who’s financially responsible. If you have opposite money personalities, you’re a saver and your spouse is a spender, it can lead to money disagreements and sometimes even divorce.
When it comes to divorce, everything gets split up, even the debt. For example, if you’re a diligent saver, invest carefully and maximize your RRSP and TFSA contributions each year, while your spouse maxes out their credit card and is in debt up to their neck, it doesn’t matter. The assets and debts during the marriage get split in half. Your spouse will get half of your investment portfolio, while you’ll owe half of their credit card debt. It may not seem fair, but that’s why you should be extra careful when choosing your better half.
When dividing assets, not all assets are created equal. For example, what’s more valuable, a $20,000 car or a $20,000 investment portfolio? The car will tumble in value over time (unless it’s a classic car), while the investment portfolio will grow. Don’t lose sight of this, especially when emotions run high.


Don’t Stretch Yourself Financially

While it would be nice to be able to afford to stay in the family home, that’s not always realistic. If you were already stretched financially when you had the paycheque of your spouse coming in, it’s probably better to take the proceeds and buy a smaller home. There’s also nothing wrong with renting. Divorce brings about a lot of changes in life, so buying a home right away may not make the most sense.

4 Shopping Tips for Black Friday and Cyber Monday

Are you ready to shop ‘til you drop? This Friday is Black Friday, where retailers offer their best deals of the year. Black Friday used to be just an American shopping phenomenon, but a few years ago it came north of the border and it’s been a hit ever since (Black Friday has actually proven more popular than Boxing Day). Black Friday is the perfect time to pick up some last minute presents for family and friends. And don’t forget about this coming Monday, Cyber Monday, where online retailers offer their best deals of the year.
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Without further ado, here are some tips for getting the most out of Black Friday and Cyber Monday.

Tip #1: Create a Budget

Thanks to credit cards and mobile payment, it’s easier than ever to spend these days. With the simple tap of your credit card or phone, you can spend $50 in an instant. However, this convenience comes at a cost. It makes it easier than ever to go over your holiday spending budget. The last thing you want is to start the New Year in debt, carrying a balance on your credit card.
Before going on a Black Friday and Cyber Monday shopping spree, take the time to create a budget. If you have a lot of family and friends to buy for during the holidays, consider setting a spending limit per person and in total. For example, you might spend up to $20 per person and $300 in total for gifts for everyone.

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Tip #2: Earn Credit Card Rewards

If you’re anything like me, you’ll end up spending a bundle on holiday presents, so why not get rewarded for that spending? Instead of paying by debit, use a cash-back or rewards credit card to earn cash. Most credit cards offer one or two percent cash-back or rewards on purchases. Just don’t lose track of your spending and make purchases for the sake of earning reward points. (No credit card in the world is worth carrying a balance and paying 19 percent interest just to earn one percent in rewards.)

Tip #3: The Best Deals Aren’t Always Found in Store

Why head to busy, crowded malls when you don’t have to? Don’t just assume the best deals are found in store. With Cyber Monday just around the corner, there are plenty of deals to be had online. Not only can you often find a better selection online, many stores offer free shipping. That brand-new laptop you’ve been waiting for could be yours with a few simple clicks of the mouse at half price. Some retailers post their Cyber Monday deals ahead of time. Take the time to comparison shop and see if you can find a better deal on the World Wide Web.

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Tip #4: Avoid the Old “Bait and Switch”

Retailers like to wow customers by offering eye-popping deals on door crasher specials. Some retailers open the store early or let customers line up outside the night before. Unless you’re willing to wait outside in the cold overnight, chances are the best deals may be gone by the time you arrive. Retailers know this and may offer you a deal on a similar products, say a TV, at a higher price. This “deal” may not end up being much of a deal. If a retailer is sold out, take some time to shop around to see if you can find a better deal elsewhere.

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