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.

If You Called South Africa Home

If you called South Africa home, life would be very different….

south-africa

There is at least one thing though that would be pretty similar- the approach you and your financial advisor take to develop your financial plan.

Greenspring recently had the privilege of  hosting Bruce Fleming from the Financial Planning Institute of South Africa (FPI). Bruce won the FPI Financial Planner of the Year competition for 2016-17. This is a very prestigious award given to the most deserving recipient after three rounds of judging; the winner then serves as FPI's lead volunteer brand ambassador for one year. Bruce was attending conferences in Baltimore in September and he had time to sit down with us.

What was so striking when we met with Bruce was that despite all the differences in our countries-regulations, politics, language, currency, even the seasons- the fundamentals of financial planning are universal.  First an advisor will help you examine and really think about your financial goals. Does your spouse or significant other share these goals or are there other things to consider? Next, we assess where you are today financially and where you want to go.  After a thorough analysis, we develop a plan to get you where you want to go that incorporates risk management (what could derail my plan?), tax implications and strategies, and estate planning. The best laid plan is useless unless it is efficiently  implemented (hint: let your advisor do the heavy lifting here!).  After all the implementation items are checked off, you may think you can put the plan up on the shelf and go on about your way and all of your financial goals will come to fruition right on schedule. Not likely. Life happens, things change and so will your plan. You and your advisor need to meet as life changes, or at least annually, to monitor the plan and course correct when necessary.

As financial advisors we are dedicated to an ongoing relationship where we can help you achieve your financial goals. Whether you are meeting with Bruce in Cape Town or sitting down with us in Towson, we would all would be doing pretty much the same thing and following a similar process. Yes, Bruce has a much cooler accent, but at the end of the day your experience would be remarkably similar. As with many things in life, putting a clear plan and process in place is an integral component of achieving ultimate success, in whatever country  you might call home.

 

The Riskiest Day Of Your Life

There is one day among all others that it is the riskiest day of your financial life.  The day that you retire.  Let me explain.  There are two main risks when it comes to investing.  First, the most obvious risk is volatility.  The chance of loss that can occur, especially when you invest in risky assets like stocks.  The second risk is inflation, or the potential for outliving your money.  If the costs of goods and services go up faster than your investment portfolio this becomes a real risk. These two risks are elevated the day your retire.  If you experience a major loss in your portfolio in the first year of retirement, you are going to have to maintain your lifestyle on a much lower asset base for the next 25+ years.  Similarly, if inflation explodes higher right after you retire, you will need to generate more income for your entire retirement just to maintain your current standard of living.

To look at it another way, if you are 90 years old, both volatility and inflation aren't as large of a threat.  You just aren't going to live that long for those risks to do significant damage.  If I am 92 years old, have $1 million, and am pulling $50,000 per year from the portfolio, it really doesn't matter that much if I lose 30% of the portfolio value,  I still have 14 years of income ($700,000 portfolio divided by $50,000 per year) left if the portfolio has no growth from that point on.  These risks subside every day as your life expectancy gets shorter.

At retirement, there are some ways to mitigate those risks:

  1. Volatility- there are two ways to counteract volatility.  The first, and easiest.  Invest in safe assets.  If you just buy CDs with your money you won't experience any volatility (unfortunately you won't earn much either).  Another way to reduce volatility is to extend your holding period.  Over rolling one year periods, stocks lose value about 30% of the time.  Over rolling ten year periods, they only lose value about 5% of the time (S&P 500).  That is why volatility is not a major risk to younger investors.  If they don't sell, those losses tend to recover, because they have lots of time before they need their money.
  2. Inflation- while we haven't seen any significant inflation in our country since the 1970s and early 1980s, it would be wise not to disregard this risk.  One of the best ways to fight inflation are with assets that benefit from rising prices.  Mainly, stocks have been able to incorporate rising inflation into the prices of the products they sell and real estate increases rent and sees values go up.  More recently, the US government has created inflation protected securities which increase in value directly with the consumer price index.  In short, there are specific securities that can help combat an inflationary environment.

Thinking about these risks and how to mitigate them in retirement is key to a successful retirement income strategy.  Now that pensions have become less common, and interest on CDs and bonds are meager, it is more important than ever to have a solid strategy in place.

401k Advice? I Don’t Need No Stinkin’ 401k Advice!

Schwab Retirement Plan Services recently announced the results of a nationwide survey of 401k participants.  When it comes to getting professional 401k advice only a small percentage of participants actually got help even though most people acknowledged their need for such advice and the confidence that would come from it.  Participants were much more likely to get help for the following things:

  • 87% – Changing their oil
  • 51% – Installing a new faucet
  • 36% – Preparing their taxes
  • 32% – Getting help landscaping
  • 24% – Getting help making 401k investment decisions

Clearly, this is more evidence that we have an engagement problem when it comes to getting most people to save and invest wisely for retirement, even though people recognize the need to do so and the peace of mind that comes from with it.   

Schwab has put together a really nice infographic that summarizes the results in more detail: Schwab 401k Survey Infographic

Real Life Returns vs. Expectations In Financial Planning

Financial planners use assumptions when developing projections for their clients.  Those assumptions include investment returns which have a major impact on results.  After several meetings, most of our clients understand that our assumptions are for portfolio returns that typically range between 4 to 7% per year depending on the risk a client is willing to accept.  What often times gets lost in those projections is how unlikely they will experience those returns in a SINGLE YEAR.  The chart below shows the distribution of annual returns for the Dow Jones Industrial Average:

Bet on GreenA lot of people came into 2014 thinking that after such a strong year for equities, the indices were due for a pause.Looking at the data tells us a different story. There have been eighteen instances since 1921 that the Dow Jones Industrial average was up at least 25% (including last year). The average annual return following these periods has been 11.81%, nearly 50% higher than the 7.93% average we have seen over the last ninety-three years.Looking at the data makes a few other interesting points:Double digit returns are the norm, not the exception. The Dow is almost 3x more likely to be up 10% or more than up single digits.On average, one in five years the markets are up at least 25%The Dow has been up double digits 51% of all calendar years.Just as strength begets strength, weakness begets weakness. The average return for the year following a 25% loss was just 1.91%, ~75% less than the 93 year average.It’s important to remember these numbers are just averages. Markets don’t follow a schedule, often going through periods that don’t rhyme or reason. Consider that since 1921 there have only been five years when the market has been right near the average return of 7.93%.Using a normal bell curve, we can say that 68% of the time, annual returns will be between -11.5% and 27.4%, which is a pretty huge range that doesn’t inspire much confidence. However, we can say with plenty of confidence that if you had to set your portfolio on auto drive, it pays to be long stocks, bet on green.

 

The highest probability is for your stock portfolio to generate returns above 10% per year.  Almost one-third of all annual returns are negative.  The point here is to remember that projections and plans don’t unfold over one year periods.  They happen over lifetimes.  We need to make sure we think about our investments over those periods as well.  This will help us mitigate the urge to “tweak” the portfolio during the periods where we have much higher or lower returns than expected, since we know that returns that deviate from our expectations in a given year are the norm, not the exception.

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.