Should You Make Changes Due to the Equifax Security Breach?

Yes and No. How’s that for an answer?

In all seriousness, yes, we feel that the risk of identity theft is strong enough that you should make changes. However, you should not make changes solely due to this particular situation. Even if this Equifax breach had not occurred (and for those of you not impacted this time), we would recommend most of these same tactics to help prevent identify theft. There are so many headlines about security breaches each year that it pays to take a few minutes and take action now. Here are a few things you can do:

  • Alerts: Most credit cards and banks let you set up alerts. For example, I get immediate text notices when any of these things happen: a) any transaction over $1,000, b) any ATM withdrawal, c) any foreign transaction, and a few others. You can check with each bank/credit card to learn how to set up these alerts and to determine how to customize them as you please.
  • Credit Monitoring: You could subscribe to a service that monitors your credit report and alerts you to changes or new requests for credit. You can do this at any of the three major credit agencies (Experian, TransUnion, and Equifax) as well as other firms such as https://www.creditkarma.com/. For this particular Equifax breach, you can sign up for one free year of monitoring services by visiting https://www.equifaxsecurity2017.com/.
  • Free Credit Report: The official website to check your credit reports for free is www.annualcreditreport.com. You can check each report once per year. Some people check all three at once. Others retrieve each one every four months so that they check each on a rotating basis. If you notice any errors, you can then report it.
  • Passwords: It’s best to have a unique and complex password for each of your financial institutions (e.g., banks, investment accounts). Furthermore, many institutions allow for two-factor authentication where they send you a code via text message after you log in. We would advise you to enroll in this enhanced authentication.
  • Opt-Out: You can opt out of prescreened credit card offers by calling 1-888-567-8688 or visiting www.optoutprescreen.com.
  • Shred: Shred important documents that have account numbers or other identifiable information instead of just throwing it away.
  • Credit Fraud Alert: Placing a fraud alert means that a business is supposed to (but is not required to) verify your information more thoroughly before issuing credit. It is free, and if you place it with one agency, they will report it to the other two. The downside is that there can be a bit more hassle when you truly want to get a credit card, loan, etc.
  • Credit Freeze: More severe than the fraud alert, a full credit freeze makes your credit report unavailable and therefore prevents new companies from issuing credit. There will likely be a small charge ($5 to $10, though you can try to get this waived with proof of identity theft), and you must initiate the freeze with each of the three credit agencies. The downside, of course, of the freeze is that it will create difficulty for the legitimate needs of someone to pull your credit (e.g., if you get a new cell phone plan, if you change banks). You will be issued a PIN and would need to contact each agency to lift the freeze. You can learn more about freezes and alerts here – https://www.consumer.ftc.gov/articles/0497-credit-freeze-faqs. Note that even after placing a freeze, your existing lenders and creditors can still access your report, so it’s important to follow some of the other suggestions here as well.

Good luck, and let us know if you have any questions or if you utilize other tools and techniques to help keep the bad guys at bay.

Amending Warren Buffet’s Golden Rule

One of the more damaging pieces of advice to the average investor is Warren Buffet’s famous investment rule:

“Rule No. 1: Never lose Money. Rule No. 2: Never forget Rule No. 1”

While this folksy wisdom has a great ring to it, it can be easily taken out of context. I think what Buffet is trying to say is not to gamble with your money and be prudent in your decision making. Many investors read this rule and believe that they should literally attempt to not lose money when they invest. Over the past 20 years, Buffet’s own company, Berkshire Hathaway, has had 6 losing years, with one of them erasing approximately 1/3 of his shareholder’s value. That means over the last 30 years, he has broken his own rule 30% of the time!

Investing involves risks. Those risks aren’t just theoretical. Historically, the stock market goes down around 1 out of every 3 years. For those who are trying to follow Buffet’s rule, how are they going to deal with this simple fact? Unfortunately, we tend to see it manifest itself in market timing, the act of trying to get in and out of the market at the right times. No one we know of has been able to do this consistently enough where you could attribute their performance to skill versus just plain luck. Buffet himself eschews the practice of market timing. He once wrote that his, “favorite holding period is forever”.

Those investors who want to follow Buffet’s rule have three strategies they can lean on to help them implement this idea of not losing money:

  1. Time period- over one year periods, the stock market has negative returns about 30% of the time. Conversely, there has never been a 20 year period in the S&P 500 where returns have been negative. The longer time you have, the lower the probability of losing money.
  2. Diversification- when you buy one or two companies, the risk of loss is high. In fact, we wrote about this in a prior post. Since 1983, 39% of all publicly traded stocks have lost money. You must spread out your bets to ensure you don’t pick one or two losers that can cause permanent losses.
  3. Discipline- there will be bad times. Probably the easiest way to violate Buffet’s rule is to sell your investments AFTER a loss. Having the discipline to stick with your investment strategy after a difficult period is a key factor in avoiding permanent losses.

I think amending Buffet’s rule would be immensely helpful. Here is how I would word it:

“Rule No. 1: Don’t lose money, permanently. Rule No. 2: Never forget Rule No. 2”

By implementing the three strategies we’ve listed above you have a much better chance of following that rule.

Some Things Never Change…

The sun rising in the east, human ingenuity, the changing of the seasons, wars, and conflicts in the financial services industry.  These are just a few things that will never change.

I joke, but not really.  I hesitate to say that this new story was shocking, since it is something I've now come to expect:  Morgan Stanley Purges Vanguard Mutual Funds.  It is not at all uncommon for a brokerage firm to remove a fund company from its platform, but in this instance, when you read the reason why you'll probably be as upset as I was:

Brokers and consultants said that Morgan Stanley is almost certainly retaliating against Vanguard because of the Valley Forge, Pennsylvania-based firm’s longstanding refusal to pay for brokerage firm “shelf space” as part of its crusade to keep expenses for investors low.

With all of the "fiduciary" talk continuing to pick up steam, Morgan Stanley (and Merrill Lynch who is also mentioned in the article) have decided to not allow the largest fund company on the planet to offer its funds on their platform.  Not because of poor performance or high risk to shareholders, but because they wouldn't pay-to-play.  Because Vanguard's mission of keeping costs low for shareholders cannot co-exist with Morgan Stanley's need to make a profit.  And our industry wonders why we get a bad reputation?  This is exactly the reason we started Greenspring 13 years ago.  Several of us left the organizations mentioned in this article because we wanted to do what was in our client's best interest.  That often times could mean investing in the lowest cost mutual funds on the market.  Now Morgan Stanley is saying that won't be possible.  As we've said before, if you work with a broker at one of these groups, they are not necessarily bad, but the system is set up against you.  Don't hate the player, hate the game.

 

 

Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.