Largest-Ever Hacking & ID Theft Case Bust
From The Denver District Attorney’s Office:
The U.S. Justice Department announced charges in what it said is its biggest ID Theft case ever. Hackers stole credit and debit card information from more than 130 million accounts. In most cases, the hackers either used personal credit card numbers to make fraudulent purchases or they used debit card numbers to drain individuals’ bank accounts.
The good news is that in Colorado, and 44 other states, the law requires that customers be notified when their identity has been compromised. In addition, almost every bank and credit card company takes responsibility when there are fraudulent charges on an account. If something goes wrong, consumers are protected by the Federal Fair Credit Billing Act. While it is virtually impossible for an individual to prevent this type of massive data breech, steps to minimize risk and mitigate losses are easy to take:
Monitor your credit card and bank accounts closely – reporting any charges or activity that you do not recognize.Request a free copy of your credit report once a year from each of the three major credit reporting agencies at www.annualcreditreport.com or 1-877-322-8228.Shop only on secure internet sites. For more information go to http://www.idtheftcenter.org.Don’t give any part of your Social Security, credit card or bank account numbers over the phone or Internet, unless you have made the contact to a company or financial institution with which you are familiar.
NAPFA Testifies before Congress
This video will add some clarity on why Fee Only advisors are so passionate about serving their clients as fiduciaries.
Professor Eugene Fama on Market Efficiency
This is from Dimensional Fund Advisors – on the Fama French Forum. A video with Professor Fama outlining the benefits and limitations of efficient markets. I recommend watching this video.
What Should Investors Do Now?
DFA’s Weston Wellington at his best – sizing up the markets and making comparisons.
If you have some time, I highly recommend viewing his video series.
Travelling Con Artists – April Fraud Alert from Denver DA – Mitch Morrisey
Traveling con artists are in metro Denver. These con artists arrive every spring with door-to-door roofing, paving and other scams, intimidating the consumers into paying thousands of dollars for poor quality work. “There is absolutely no reason to do business with people who come to your door and never let strangers in your home,” says Denver District Attorney Mitch Morrissey.
How to Recognize Door-to-Door Con Artists
- They peddle roofing, paving, and other repair work door-to-door.
- They often prey on the elderly using friendly, high-pressure tactics.
- They may say they have material left over from a previous job, or insist they did work for you or a neighbor before.
- They quote bargain prices, but demand much more after the job is complete.
To Protect Yourself from Door-to-Door Scams
- Don’t do business with door-to-door contractors – even if they promise to do the work for bargain prices.
- Get at least three bids on work, and don’t always choose the lowest.
- Insist on a written contract and don’t be pressured into paying more or doing additional projects.
Need help or have a question? Call the Denver District Attorney’s Fraud Line: 720-913-9179
The “Great Recession?”
I don’t know about you, but I am tired of the financial media making “good copy” from “bad news.” They’ve been suggesting for the past 12 months that the recession we are experiencing is like the Great Depression. I think this article puts it in a new perspective.
Who will regulate?
The recent scandals ripping through Wall Street and Main Street have awakened a few. As new regulations and regulators aim to takeover our financial systems, one cannot help but wonder “Who Will Guard Your Nest Egg?” Jason Zweig discusses this concept in his article of the same name.
The Credit Crunch – How Did We Get Here?
Dimensional Fund Advisor’s David Plecha gives us an overview of the Credit Markets and a history of how we got to this point - http://www.dfaus.com/library/videos/current/
2008 Recession Lessons Learned
Wow! 2008 was a rough year for many investors. Once again we learned the painful lesson that risk and rewards are always intertwined. ( Nullum prandium gratuitum for those of you who are students of Latin.)
#1 Diversify your risk:
Asset allocation, investing in a well-constructed, broadly diversified portfolio of stocks, bonds, and cash equivalents is really critical during bear markets, especially if you’re concentrated in a sector that really got hammered, for example, the financial sector in 2008 . “Keep your nest eggs in many baskets, so they can’t all get broken at once.” Attribute quote?
#2 Think long term, past the Recession:
Most of the recessions we’ve experienced over the last 60 years have lasted less than a year. Though your portfolio will likely move down in concert with the rest of the markets during a recession, the long term trend for equities has always been positive. Remember that most of the bad news has already been absorbed by the markets and is reflected in the stock prices; the stock market is a forward indicator and tends to track about 6-12 months ahead of the economy so that the market often recovers before the economy itself does.
#3 Act conservatively:
Don’t go climbing out on long and slippery financial limbs, especially when the winds and storms of recession are blowing hard. .Make cautious, conservative financial decisions, but be ready to act when the time is right. For example:
- Don’t bite off more real estate than you can comfortably handle. If you’ve been saving up for a home, wait until you feel that the property market has bottomed. Crystal ball statement
- If you’re buying a house now, consider applying for a fixed rate mortgage.
- Don’t take on additional debt unless you know you can handle it now and into the future.
- Sock away an emergency fund rather than spending for big items or making investments.
- Live well within your means. Keep a lot of cash equivalent reserves available. You’ll sleep better at night, and when a great buying opportunity presents itself (real estate, business, or investment) you’ll have the ‘fiscal ammunition “to ‘pull the trigger “on the deal.
- Keep your income flowing .If you are working, be the most valuable, indispensable, well- trained employee you can be. Layoffs can be very painful emotionally and fiscally. If you have a reasonable concern that you could lose your job, be proactive and flexible and start searching the job market for your next position.
- Continue to save as much as possible. Get a full employer-match through retirement fund contributions.
#4 Be patient and stay the course:
Lots of people are tempted to bail out on their poorly performing investments, especially when the market is reaching historic lows, but they may be missing the boat by unloading assets that could recover nicely once the markets improve. Remember the ultimate goal is to buy lower and sell higher. Many investors will miss the largest percentage of the upswing when it comes because they chose to get out of the market. The recession has given us lower stock prices and cheaper purchases everywhere! Avoid acting out of panic. The patient investor is usually rewarded for his equanimity.
#5 Look at future trends:
Realize that the markets and the global economy have political support and a long-term positive trend. Whether or not you agree that the Fed should step in and “bail out” failing institutions and other financial channels, the Fed’s strategies and American ingenuity have worked in the past to ultimately turn things around. Over the past 80 years, the domestic stock market has averaged an annual return of about 10%. Also the global economy is expanding, especially in the developing countries. Brazil, India, and China especially, are predicted to grow over the next several decades.
#6 Above all, learn to live a life of balance and equanimity:
Remember that there’s a whole lot more to your life than your financial net worth and your stock portfolios. Don’t get obsessed over the daily fluctuations in the stock market; that’s a formula for driving yourself crazy. Put your paper losses in perspective: many of your gains were only on paper too. The fact that you are living in America in the 21st century, and that you even have the ability to have a portfolio of investments puts you in the top echelon of wealthy human beings from a global perspective. Stop and think a minute about all those poor souls living in refugee camps all over the globe, or living under ruthless dictatorships like Zimbabwe and Burma, or wracked by war like Afghanistan, the Congo, and the Sudan.
It’s definitely a good time to count your blessings, hug your family, and celebrate the start of a new year!
Retirement Readjustment Needed?
An article in May’s USA Today entitled “Shrinking Nest Eggs: How the ailing economy affects yours,”[i] painted a depressing picture for those nearing or in retirement. Citing slumping housing prices, decreasing 401(k) values and rising inflation, the article tells us that many investors will be revisiting their retirement plans and possibly delaying their retirement.
The piece goes on to proclaim that “many financial analysts are predicting a prolonged period of below-average returns on both stocks and home equity.” Its author concludes that Americans may need to face a sobering fact: that many of us will have to “save more, expect less, and work longer than we planned.”
If the article’s intent was to move its readers toward a lifestyle of living below their means, then we would applaud its value as financial journalism. However, after reading a bit further, we realized that the story had less to do with falling assets and a slowing economy, and more to do with the reality that many investors misunderstand their options and make inappropriate decisions. The article referred to a few examples of people grappling with their upcoming retirements:
- A California IT worker who believes that now, after a 4% decline in her portfolio and a 25% decrease in her home’s value, she may not be able to ever retire.
- A Wisconsin comptroller for a manufacturing plant who had planned to retire at the end of this month, but who is now delaying his journey due to “the recent declines in the stock and real estate markets.”
If the investors it cited above are in any way representative of those who are currently nearing retirement, then we might make a case that the reason for their distress is not only the economy, but possibly inappropriate asset allocation, diversification and lack of appropriate financial planning.
Some financial education might go a long way in improving their outlook. Here are our planning assumptions based upon what was written:
- The California IT worker seems to have four separate items to think about:
- If a 4% decline has her worried, then she may have an inappropriate asset allocation in place and one that must not be matched perfectly to her risk capacity or tolerance.
- A 4% decrease in assets is not terribly significant over the long-term when it is related to a retirement that is more than 5 years away; we wonder what her time horizon for retirement is? It doesn’t sound like she has clearly identified the goal that she would like to hit.
- The 4% decrease has us wondering what she was investing in. A 100% all-equity/stock, high risk, investment in the S&P 500 would only have been down 2.93%[ii] over the same period.
- Finally, she is counting on her home’s equity to fund her retirement. This is speculating, not investing; it can be likened to investing in a single stock. Moreover, counting on the equity from a single property type in a single city is the definition of a concentrated investment strategy, and in this case it performed poorly.
- The Wisconsin comptroller who is now delaying retirement until 2009 must have had a volatile portfolio indeed – and one that was lacking diversification. (In fact, we cannot figure out what mix of investments would have been so volatile over the last few months as to force him to delay his retirement). Actual Total returns from January 1 to May 17 (when the article was printed) was -2.1% for the Dow Jones Industrial Average, -2.9% for the S&P 500® Index (US Large Stocks), -2.57% for the Russell 2000 Index (US Small Cap Stocks), and +1.16% for the MSCI All Country World ex US Index (International Stocks)[iii]. If he was invested in these segments as part of an overall diversified strategy then his corresponding portfolio wouldn’t have been down all that much in our opinion. Our reaction to his story was once again more philosophical in nature:
- Any investor rattled by market fluctuations should revisit his allocation policy and take some time to better understand the behavior of the equity/stock markets; this is especially true for an investor who has become this anxious after a few months of falling prices.
- Imagine for a moment that he had a very volatile portfolio had invested only in the smallest, riskiest stocks he could find and that these stocks pushed his portfolio down 10%. If he had saved up $2,000,000 that would have represented a $200,000 decrease and his portfolio would have now been worth $1,800,000 (of course, only if he sold all his investments). We are left wondering why he couldn’t retire. He must have been treading a very thin line between success and failure.
- Given that his portfolio must have been volatile enough to force a change in course for retirement, then we why he was still “swinging for the fences” and investing in such a risky manner when he was this close to his date for retirement. Good planning should have helped guide him to a less volatile portfolio on his final approach. In fact, excellent planning would have suggested that he begin preparing 2-4 years prior to avoid things like this.
- If he had consulted an advisor maybe he would have realized that he could still retire.
We don’t wish to take the above investor concerns lightly, but the ideal retirement income solution does not exist outside the limited scope of the Social Security system where the investor receives a stream of guaranteed inflation-adjusted annuity payments. As a result, many are faced with a series of confusing tradeoffs in an effort to approach similar, desired result. The examples in the USA Today offer compelling evidence that making expensive mistakes with respect to key financial decisions is all too easy.
