Why the Germans Do Not Prefer Electronic Payments

The world of payments is rapidly moving towards the digital options. However, still several customers use cash and they finalized their transactions by using actual cash.

Industry experts are predicting that cash will be obsolete in a few coming years. However, there is a European country which is following a totally opposite trend. In Germany, the use of physical cash is more than any other country in the world. According to a research conducted by Federal Reserve, the people of Germany use cash in 82 percent of their financial transactions. 13 percent of these transactions are executed by using debt cards while only 2 percent of the transactions are carried out using credit cards. Germans keep more cash in their wallets as compared to the amount carried by people in other countries. On average, each German keeps $123 in his wallet. As per the research, the average amount kept in the wallet by Germans is almost double as compared to the quantity of cash kept by people in other countries. Americans keep $74 in their wallets, on average, while the people of Netherland carries $51.

The people of Germany not only like to pay in cash but also, they want complete freedom to do so. A recommendation to limit the use of cash faced extreme opposition from consumers and political experts. According to Guardian’s report, there was a ban imposed in Germany on making any payment via cash which has worth more than 5 thousand pounds. The purpose of this ban was aimed at stopping money laundering and the use of cash to support terrorist activities. Such bans are commonly imposed in other countries of European Union but in Germany, this suggestion faced strong criticism by the majority of the political groups.

According to Guardian, the head of Germany’s Central Bank, Jens Weidmann said while talking to the journalist of Germany’s newspaper named “The Bild” that if Germans get the impression that the use of cash is going to be gradually restricted in the country, it can prove to be actually fatal.

Even the newspaper was also against this suggestion. In February 2016, the newspaper published an open letter and urged the readers to sign it and send it to the finance minister.

The commitment of German people with the use of actual cash is so strong that most of the people are storing the cash in their houses. As per Wall Street Journal, the majority of Germans are withdrawing their money from banks and storing it in the safes inside their houses. This trend is so intense that a vault making company reported 25 percent increase sales increase in the first half of the year 2016. Several other such companies are delivering their maximum production in order to meet the increased demand of vaults.

Why do Germans Prefer Cash?

Despite the fact that electronic payments have made the things extremely easy for the people, why Germans still prefer physical cash over electronic payment? One reason for this is the security. Germans believe that payments via physical cash are more safe and reliable as compared to electronic payments.

To cater these issues, it is recommended that such a payment partner should be chosen which is compliant with the standards of data security. Moreover, the payment processor chosen by German people should accept several payment options. Online traders can only accept electronic modes of payment, but if Germans are provided with multiple payment options, they can easily choose the one which is best suited to their needs and expectations.

According to the Wall Street Journal, another reason behind German’s hesitation regarding the electronic payment is inflation. Because of the negative interest rate implemented by the European Central Bank, the Germans have to pay for making the deposit into the bank. Furthermore, the history of hyperinflation also made the people of Germany reluctant towards the use of online payments.

Because of the fact that the payment systems continue to get more and more advanced, it is expected that with the passage of time, the Germans will also move towards electronic payments, especially, when they have to make international payments. Business companies have to work hard in order to reach German people, but these companies shouldn’t give up.

Stay Healthy and Wealthy in 2017

When you make those New Year’s resolutions, you’re thinking about fresh starts and the year ahead. What you might not realize is that some resolutions also could save money. Here are some popular resolutions that could help get you and your finances in shape in 2017.

Quit smoking: You can save money by stopping a pack-a-day habit, which can cost between $1,825 and $3,650 per year, depending on the cost of cigarettes in your area. Nationally, a pack-a-day smoker is going to spend an average of $2,000 annually on cigarette costs.

Set up and stick to a realistic budget: If you want to resolve to stick to a budget in 2017, you must start with a realistic plan. People tend to make financial resolutions the same way they do a weight loss plan. If you start with lofty goals they will be unachievable within a month. List your priorities for spending rather than restricting your spending. Focus on necessary expenses then include a certain amount for retirement savings. Then with the remaining money you have each month, set aside a little for enjoyment. It’s critical you have rewards in your budget.

Exercise regularly: You’ll save money in several ways with regular exercise. On average, Americans are spending $7,800 annually on health care, according to the National Association of Health Underwriters. But exercise brings real savings. “If people are eating right and exercising three times a week for 20 minutes a day, they see prescription costs decrease by 70 percent and medical costs decrease by 30 percent,” says Ric Edelman of Edelman Financial Services.

Stop spending money recklessly: One of the best ways to stop spending your money recklessly is to track where it is going each month. Check with your credit union and download their free mobile budgeting app that shows expenditures by category so you can monitor your spending. A great way to get your spending under control is quit trying to “keep up with the Joneses”. If you want to fix your bad spending habits in 2017 start hanging out with other spendthrifts because you will likely become one yourself.

Eat healthier: A healthy eating plan can be as — or more — economical than fast food. It’s a total myth that eating healthy is expensive. Buy smaller but leaner cuts of meat, eat protein-rich beans and buy produce in season when it’s freshest and least expensive. A smaller amount of a leaner cut can slice your food bill and your bad cholesterol.

Build an emergency fund: Nothing takes the stress out of financial situation like spare cash. If you are among the millions of Americans that don’t have enough money set aside to cover unexpected expenses or emergencies, then you should resolve to build one in 2017. Experts recommend putting enough money in a savings account to cover six months’ worth of expenses in case of unexpected emergencies like job loss, maternity leave or medical issues. You can always apply a small amount of your paycheck towards this account, so you make sure it is hidden from you.

Pay off high-interest debt: Paying down credit card debt is one of the most popular short-term goals in 2017. Try focusing on paying off your high-interest credit card debt before other debts because it is more expensive. And, it you are motivated by seeing those results first hand, start by paying off your card with the lowest balance first so you can feel that sense of accomplishment.

Create your estate plan: An important 2017 resolution would be to tie up any financial loose ends for your loved ones so they aren’t left trying to pick up the pieces. Make sure you have a will or trust that designates who’s in control of your assets. You certainly don’t want the state court system to make that decision for you. Don’t forget to designate a guardian for your children, and someone who will make financial and healthcare decisions for you if you are unable to do so.

Develop common financial goals with your partner: Many times finances are the biggest source of conflict between couples. It’s important that couples sit down and create a financial plan. It doesn’t usually work to try and manage their finances separately.

Any of these resolutions can help improve your financial security in 2017. I suggest tackling one financial tip each month so you don’t get overwhelmed. Then as you get accustomed to the new approach to spending and saving, add another. By the time 2017 starts dwindling toward 2018, you will find you’ve made progress on achieving your financial goals.

How to Increase Your Investment Portfolio Efficiency to Outperform

Are your investments running on all cylinders? How can you be sure?

High Efficiency Portfolios: All assets produce, either positive capital appreciation, interest or both.

Mutual Funds, ETFs or SMAs all have one debilitating feature, with the amount of money deposited into each of these bundled products, it is impossible for efficiency. Pop quiz: when considering a group of ten stocks, is it better to have most of them make a substantial rate of return while some of them lose proportionately or to have each stock either make zero or a nominal rate of return. Historically speaking, bundling equities in a product like a mutual fund, would result in 6 positions with positive returns, 1 relatively flat while the rest fall into negative territory.

For example, Portfolio 1 on the plus side had 3 stocks that garnered 15%, two at 10% another at 5%. To finish off the portfolio, each stock had 0%, -5%, -10% and then -15%. I’m sure if you paid any attention to the stocks in your mutual fund, you would be pretty happy seeing those types of returns and unfortunately, many of you do. Now Portfolio 2, our high efficiency model, would have returns that brought returns of two stocks that had 10% return, 8 stocks at 5% and the last one at zero. Not very exciting, so what’s the difference. Believe it or not, Portfolio 1 has a 4% average rate of return while Portfolio 2 boasts 5.5%. It may not seem much, but over a 10 year time horizon, that 1.5% increase compounded would realize a 13.3% additional return.

Retirement accounts, 401k plans are notorious for producing adequate returns, essentially because they are so inefficient. It’s no wonder why increasingly more employers are allowing “in-service withdrawals” for employees who want to manage their own investments without incurring all the embedded costs and mediocre returns from their employer’s retirement contribution plan. There is also a growing trend for smaller companies to administer “open architecture” retirement plans where the control of investing is completely up to the participant.

Efficiency has become very prevalent in recent years, from increasing the gas mileage on a car to tax credits for installing the right windows and furnace. Corporations and families alike are looking for ways be leaner, to work more productively. We are all in search of ways where we can get out a lot with putting in a little. So why hasn’t the way we manage our assets followed suit? Ease of use, convenience and simplifying are benefits extoled by the money managers who create the euphoria of investing in cookie cutter, bundled products. As investors, where do we go from here?

Let’s look at how a collection of stocks ought to be put together. We know that there is a level of risk needed to produce gain. How much risk versus how much reward is an important lagging measurement used to quantify this adverse relationship. There have been many money managers who would tell you that the number of stocks to reduce risk should be large. I’m sure you have heard that mutual funds are ‘safer’ than individual stocks. Well, that just is not the case. We proved that with our portfolio comparison. We can though, mathematically prove that the actual number of individual stocks needed to bring the risk/return ratio in-line is 13. Simply said, any more stock positions than that does not decrease the amount of risk. Through our many years of stress testing our data, we put together 5+1 High Efficiency Portfolios, made up of 10 positions in each portfolio. What makes them unique to each other is the amount of times they are rebalanced in a year. We have over 25 “filters” in a quantitative computer-based model that has proven to successfully produce some of the best rates of return collectively in the marketplace.

You can use the following to create your portfolio of stocks or streamline the current holdings you have whether its mutual funds and ETFs in your retirement plan or a small self-directed account you have in an on-line account. Putting together your portfolio needs to go through 4 “phases”. The first, where almost everyone goes to pick stocks, bonds, or commodities, are Quantitative Measurements. This is financial data of the company and the trade history of the stock. Price to Earnings Ratio, Earnings Per Share, or trailing 12 months are just some of the common data used to choose stocks. To create a high efficient portfolio, it is not only what you are going to measure, but how you are going to use the measurement in what-if scenarios and the hierarchy of importance within the data. Even the phases have a different level of importance in the final selection of your stock portfolio.

Our second phase is the Qualitative Measurement. This type of data can seem to be somewhat subjective, but certain events can be quantified if done correctly. Also, this data needs to have an ebb-and-flow to the industry classification where the same data may have a direct relationship, or no relationship or somewhere in between. This phase has more influence in picking stocks where the portfolio rebalances about every 6 months versus quarterly and annually. It is best if you create a list of qualitative events and then give each position a numerical data point to either choose or weed out stock choices.

The third phase is Technical Analysis. This type of data is used more heavily within shorter rebalancing terms. Stocks chosen have strong fundamentals that lead into price and buyer driven appreciation. We are careful not to choose “what’s hot” but rather a good company with stock price fluctuations that are favorable for at least the quarter to two quarters. Essential point, there is a reason this is the 3rd phase. It doesn’t drive the decision-making processes on what stocks to pick, but it certainly adds to the efficiency of making sure all the equity positions have opportunity to appreciate.

The final phase is the Fluid Risk Assessment Matrix. This is a proprietary risk assessment tool that has been 20 years in the making utilized exclusively on the back end of every computer model. The asset risk score has several qualitative and technical parameters that creates high efficiency within our model portfolios. We created a series of algorithms that produce a Fluid Risk Assessment Score of the investment where your personal risk score is inserted with the asset’s risk score produces a perfect blended score to use in finalizing investment decisions. This matrix measures 10 Dynamics of the price of the asset, risk v. reward, risk assessment slope and other quantitative fundamentals.

We believe that this four-phase discipline helps choosing the right stock portfolio, but it will also help with increasing the efficiency of your current investments in your 401ks, IRAs or brokerage accounts. And if you are asking, “What about bonds?” We created a Fluid Risk Assessment Matrix specific to bonds. This sequence of algorithms could be as important as our Equity Matrix in assessing the amount of unaware risk. To have a high efficiency portfolio, each allocation must be running on all cylinders and all of those cylinders must run in sync. By creating a disciplined exit and entrance strategy of choosing your investments will perform exactly how you predict they will.

Year End Outlook

Since November 9, the stock market has rallied about 5%. I am comfortable with this rally and I am cautiously optimistic that it can continue. First, as we have discussed all year, the stock market often moves higher after a Presidential election because the anticipation is over. Even though our election result may have been surprising to many, investors reacted with a sigh that one source of uncertainty had passed. Since President-elect Trump has very different priorities than may have been anticipated, the market rally started even stronger as fast-money traders quickly moved out of some sectors and rotated into others they speculated would benefit from new policy priorities. Such rotation continues and is still nothing more than speculation.

More importantly, the election coincided with the end of third quarter corporate earnings reports and a decisive end to the mid-cycle slowdown. Even more than the election, the current stock market rally reflects optimism in future earnings growth and economic potential given the status quo. Keep in mind that the stock market is currently making a new high only after more than 24 months retreating from its previous peak. Even still, the strength is not across the board as the averages suggest; formerly weak sectors such as materials and industrials are rallying and reliably strong sectors such as consumer goods and technology are retreating, even offering buying opportunities.

Finally, our Federal Reserve just raised interest rates and definitively signaled that more increases are likely in the coming few years due to economic strength. Though, the market initially sold off on the announcement, a rising Fed Funds rate sparked by stronger economic growth is usually supportive of the stock market and signals optimism in the future. I think we may have down days or even weeks, but can expect the stock market to move higher for a while, barring surprises from our new leadership next year.

The Bond Market
In contrast, I expect the fixed income portion of investors’ portfolios to require strategic attention in 2017. Bond valuations start with straight-forward math that relates bond maturities to prevailing interest rates. In simpler terms, as interest rates go up, bond prices go down. Interest rates are likely to continue to go up, so we will be focusing on strategies to protect capital and also benefit from rising income potential.

First, we are exiting all bond funds for anything other than temporary cash. Funds own a broad mix of bonds that will all go down in price as interest rates rise. Next, we are currently focusing on using cash to purchase short -maturity bonds, bonds with variable interest rates and step-rate callable bonds. Unlike, the future “potential” from purchasing a stock, the return on a bond is locked-in the moment it is purchased. Purchasing short-term bonds provides capital protection with modest income return. However, since rates are rising, as each short-term bond matures, there is the opportunity to buy a new bond with a higher interest rate.

Variable rate bonds are also very attractive as interest rates rise. These bonds do not have a fixed interest rate; they vary with each payment based on prevailing interest rates or inflation. The interest paid is usually a formula with a fixed component and an added “hedge” for moving rates. Since the rate is always changing, the prices of these bonds tend to stay more stable even as rates rise.

Finally, we also are using bonds that have a schedule of rising rates built in. These are known as “step-rate” bonds. They have an initial interest rate for several years that is consistent with the current market. But then the interest rate rises in future years. If rates do not rise as much as the bond offers, the issuer usually “calls” these for early pre-payment. If rates do rise, the bond provides added protection by already offering a higher interest rate in the future.

These are just a few of the strategies we are already using and will continue to employ to provide capital protection to portfolios. As Joe Weisenthal at Bloomberg points out, we are in a new era post the financial crisis. The Federal Reserve has declared victory with its latest move in interest rates and the constrained policy responses of the past eight years are likely to change with new leadership in our government. We do not know how this era will unfold. It may bring positive economic growth, a new recession or the next financial crisis. For now, we invest for the economic potential we see going into 2017.