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Scotiabank’s cash-back conundrum, gifting stocks and behind the FTX collapse: Must-read business and investing stories

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FILE — Sam Bankman-Fried, the chief executive of cryptocurrency exchange FTX, during a panel at Crypto Bahamas conference in Nassau, Bahamas, on April 27, 2022. FTX filed for bankruptcy in November, and Bankman-Fried was arrested this week. (Erika P. Rodriguez/The New York Times)ERIKA P. RODRIGUEZ/The New York Times News Service

Getting caught up on a week that got away? Here’s your weekly digest of The Globe’s most essential business and investing stories, with insights and analysis from the pros, stock tips, portfolio strategies and more.

The FTX FOMO was real, until it wasn’t

Global institutional investors, including the Ontario Teachers’ Pension Plan, poured more than a billion dollars into FTX, helping seal its leading position in the sector and Sam Bankman-Fried as the golden boy of crypto. After the bankrupted crypto company’s startling collapse in November, police in the Bahamas arrested Mr. Bankman-Fried this week on U.S. charges of criminal fraud and conspiracy. He said in court on Tuesday he will fight an extradition. But how did nobody see this coming, and did anyone raise any red flags? Temur Durrani takes a deep-dive into how big-name investors, including Canadian pension funds and Kevin O’Leary, bought into a crypto craze that ended up with criminal charges.

Scotiabank’s suspicious cash-back offer to switch to a fixed-rate mortgage

Banks have long used cash incentives and other signing rewards to promote products ranging from credit cards to bank accounts, but when a Bank of Nova Scotia client recently received an offer to lock in his adjustable mortgage rate with a cash-back incentive, it unwittingly caused an internet uproar. As Erica Alini reports, Daniel Goldsmith took to Reddit wondering whether the bank was using the financial incentive of $1,200 cash-back to nudge him toward a 5.47-per-cent fixed-rate mortgage. He also wondered whether the bank wanted him to sign up for a fixed rate because it expected interest rates to start falling in coming months. For borrowers like Mr. Goldsmith, whose mortgage instalments have been rising with every rate increase, the past nine months have been a painful financial squeeze. But if interest rates fell during the rest of Mr. Goldsmith’s mortgage term, his payment would also shrink.

Canadians are retiring early – and becoming outliers

The earliest age when people can retire and access CPP/QPP and Old Age Security in Canada is 65, yet increasingly, that age is considered young. As Frederick Vettese points out in this week’s Charting Retirement, many countries have raised the normal retirement age to reflect longer lifespans, and later retirement ages are usually phased in over many years to give people a chance to adjust. The chart below shows the normal retirement age after each country’s “phase-in” is complete.

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Normal retirement ages in OECD countries

New Zealand

Switzerland

Netherlands

the globe and mail, Source: frederick vettese; OECD Pensions

at a Glance, 2021

Normal retirement ages in OECD countries

New Zealand

Switzerland

Netherlands

the globe and mail, Source: frderick vcettese; OECD Pensions

at a Glance, 2021

Normal retirement ages in OECD countries

New Zealand

Switzerland

Netherlands

the globe and mail, Source: frederick vettese; OECD Pensions at a Glance, 2021

Interest on debt payments hit record

Canadian debt payments are rising while our household wealth is taking a tumble, writes Matt Lundy. Households made about $57.4-billion in debt payments during the third quarter, a record quarterly increase of 6.1 per cent, according to Statistics Canada data. The interest portion of debt payments jumped by 17.8 per cent – also a record – from the Bank of Canada rapidly hiking interest rates in an attempt to bring inflation under control. The turn in monetary policy has shaken up personal finances. Canada’s household debt burden – the ratio of credit market debt to disposable income – rose to 183.3 per cent in the third quarter, from 182.6 per cent in the second quarter. The ratio is nearing the record high set in 2018: 185 per cent. Meanwhile, Canada’s household net worth – the value of all assets minus liabilities – fell by around $330-billion during the third quarter, after a record quarterly decline of more than $930-billion between April and June.

Former CannTrust officials found not guilty in unlicensed cannabis trial

An Ontario judge ruled this week that three former high-ranking officials from CannTrust Holdings Inc. were not guilty of any charges brought against them by Ontario’s securities regulator, bringing an abrupt and final close to a trial that ended almost as soon as it began. As Greg McArthur reports, the prosecution of former CannTrust chief executive officer Peter Aceto, former chairman Eric Paul and former director Mark Litwin collapsed after a key government witness conceded that the fundamental allegation against the trio – that they permitted unlicensed growing in eight rooms at the company’s Niagara-area production facility – is incorrect. When the scandal erupted after a 2019 Health Canada inspection, it had wide-ranging implications, including a special committee of CannTrust’s board launching an investigation, class action lawsuits, terminations and the company seeking bankruptcy protection.

Putting the stock in stocking stuffer

Looking for a last-minute holiday present or stocking stuffer? David Berman has put together a stock market gift guide, with suggestions for your dividend-loving dad, the investment thrill-seeker on your list and even a lump of coal for the deserving Grinch.

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How to Boost the Value of Your Emergency Fund

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Emergency Fund

A rate hike could impact your savings positively. At least, that’s what most banks said following the Bank of Canada’s latest rate hike, which increased the cost of borrowing last year. As a silver lining, the interest rates offered for savings accounts and investments typically rise along with interest on the debt.

Theoretically, they’re correct. But in reality, the interest rates most savers earn on their emergency funds haven’t changed yet. Most of the major banks pay roughly 1.5%–2.5% on deposits, which is a far cry from the year’s predicted inflation rate of 4.5%–6.5%.

All that is a fancy way of saying your emergency fund will continue to lose value this year. Here’s how you can prepare for another tough year for savings.

Resist the Stock Market

When you’re earning dismal interest on a basic savings account, you might be tempted to invest your savings instead. Over the long term, you’ll receive greater returns in the stock market. However, you are vulnerable to short-term volatility.

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In a year flagged for a recession, now may not be the time to invest in short-term savings. You could actively lose money in the stocks if your emergency forces you to cash out at a bad time.

Transfer Your Fund to a High-Yield Account

While basic accounts offer interest of around 1%, some online banks offer high-yield accounts. These accounts can earn between 3%–5% on your deposits. By switching banks, you might break even with inflation.

While shopping around, make sure you read through account conditions carefully. Sometimes, a bank will exchange high-interest rates for minimum balances, draw fees, and transfer delays.

Since your emergency fund should be easy to access, you should make these concessions carefully.

Have a Safety Net in an Emergency

No emergency fund is invincible, even when the rates are good. If your next emergency is more than you have tucked away, you can put the difference on an emergency loan or line of credit.

Before you borrow, it’s a good idea to research your options. As the lender Fora outlines on its website, there are a lot of emergency loans available online today. You can learn more about emergency loans through Fora before comparing the rates and terms of individual loans or lines of credit.

All this work reviewing your options can help you understand the cost of borrowing in your emergency. This will give you a chance to find the best option for your finances.

Adjust Your Savings Goal

Most financial advisors parrot the same-old advice for emergency funds: save three to six months of living expenses for the unknown. Usually, this gives you a reasonable amount of cash to use in an emergency — whether it’s an unexpected car repair or sudden layoff from work.

However, you’re living in unpredictable and challenging times. Not only are everyday items more expensive because of inflation, but economists also believe there’s a reasonable chance of a recession in 2023.

Increasing how much you squirrel away in an emergency fund may set you up for better success for a rocky future.

The Takeaway:

You’re living through an unusual moment. Your usual savings routine needs an update to reflect these times. Tweak your savings, get a line of credit, and lock in on a better savings rate. These small changes can help protect your emergency fund.

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Be cautious of financial advice on social media: Expert

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Li Zhang, the principal of corporate citizenship with Chartered Professional Accountants Canada (CPA), said in an interview with BNN Bloomberg Tuesday that it is very difficult to quantify the rise of financial advice on social media as there are so many different platforms and influencers.

However, Zhang said it is crucial to understand what credentials a financial influencer might have. She said it is important to understand if an influencer is qualified to provide financial advice and that people should understand how those dispensing advice get paid.

“All influencers have some way of deriving income from what they’re doing. So it’s super important to understand, especially when they’re finfluencers [financial influencers], how they’re being paid,” she said.

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“And then finally, if something feels too good to be true or it’s jumping on a trend, really ask yourself to get a second opinion.”

 

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Zacks Investment Ideas feature highlights: Alphabet, Tesla, Shopify, Amazon and Palo Alto

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For Immediate Release

Chicago, IL – February 2, 2023 – Today, Zacks Investment Ideas feature highlights Alphabet GOOGL, Tesla TSLA, Shopify SHOP, Amazon AMZN and Palo Alto Networks PANW.

Which of These Stocks Has Been the Best Buy, Post-Split?

Stock splits have been a regular occurrence in the market over the last several years, with many companies aiming to boost liquidity within shares and knock down barriers for potential investors.

Of course, it’s important to remember that a split doesn’t directly impact a company’s financial standing or performance.

In 2022, several companies performed splits, including Alphabet, Tesla, Shopify, Amazon and Palo Alto Networks. Below is a chart illustrating the performance of all five stocks over the last year, with the S&P 500 blended in as a benchmark.

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As we can see, PANW shares have been the best performers over the last year, the only to outperform the general market.

However, which has turned in a better performance post-split? Let’s take a closer look.

Tesla

We’re all familiar with Tesla, which has revolutionized the EV (electric vehicle) industry. It’s been one of the best-performing stocks over the last decade, quickly becoming a favorite among investors.

Earlier in June of 2022, the mega-popular EV manufacturer announced that its board approved a three-for-one stock split; shares began trading on a split-adjusted basis on August 25th, 2022.

Since the split, Tesla shares have lost roughly 40% in value, widely underperforming relative to the S&P 500.

Palo Alto Networks

Palo Alto Networks offers network security solutions to enterprises, service providers, and government entities worldwide.

PANW’s three-for-one stock split in mid-September seemingly flew under the radar. The company’s shares started trading on a split-adjusted basis on September 14th, 2022.

Following the split, PANW shares have struggled to gain traction, down roughly 15% compared to the S&P 500’s 3.3% gain.

Shopify

Shopify provides a multi-tenant, cloud-based, multi-channel e-commerce platform for small and medium-sized businesses.

SHOP shares started trading on a split-adjusted basis on June 29th, 2022; the company performed a 10-for-1 split.

Impressively, Shopify shares have soared for a 50% gain since the split, crushing the general market’s performance.

Alphabet

Alphabet has evolved from primarily being a search engine into a company with operations in cloud computing, ad-based video and music streaming, autonomous vehicles, and more.

Last February, the tech titan announced a 20-for-1 split, and investors cheered on the news – GOOGL shares climbed 7% the day following the announcement. Shares started trading on a split-adjusted basis on July 18th, 2022.

Alphabet shares have sailed through challenging waters since the split, down 10% and lagging behind the S&P 500.

Amazon

Amazon has evolved into an e-commerce giant with global operations. The company also enjoys a dominant position within the cloud computing space with its Amazon Web Services (AWS) operations.

AMZN’s 20-for-1 split was a bit of a surprise, as it was the company’s first split since 1999. Shares started trading on a split-adjusted basis on June 6th, 2022.

Following the split, Amazon shares have lost roughly 18% in value, well off the general market’s performance.

Bottom Line

Stock splits are typically exciting announcements that investors can receive, with companies aiming to boost liquidity within shares.

Interestingly enough, only Shopify shares reside in the green post-split of the five listed.

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Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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