The Equifax Data Breach and Keeping Your Info Safe

September 12, 2017

financial advisor kansas cityBy now, most of you have heard about the Equifax data breach. It is estimated that 143 million Americans were affected by this data breach so even if you weren’t affected, chances are you know someone who was.

Equifax has a tool on their website that allows you to check and see if your data was compromised. I do not recommend using this tool for a couple of reasons:

First, when I attempted to use this tool I either couldn’t reach the website or my antivirus software flagged it as a potentially unsafe website. I don’t think I want to be entering my name and SSN on their site until they have their security issues resolved (if even then).

Second, you should assume that your data was compromised regardless of what any tool tells you. Even if your data wasn’t compromised this time, online fraud is on the rise, so it’s better to be prepared for a potential data breach whether you were impacted by the Equifax data breach or not.

To that end, here are some things you can do to monitor and protect your credit:

1. Immediately obtain a credit report from one of the three credit bureaus (Trans Union, Experian, Equifax) and review it carefully to see if you have already fallen victim to abuse or ID theft. You can do this at https://www.annualcreditreport.com/index.action.

2. Resolve to obtain another credit report from a different bureau in 2 months and again in January 2018 (from the third bureau).

3. Sign up for credit monitoring. Equifax has offered to provide free credit monitoring, but there are other services if you aren’t comfortable using Equifax.

4. Place alerts on your credit card accounts so that you are getting routine email updates about CC balances and transactions. Read the updates as they come in and follow up if something doesn’t seem quite right. (This can be done by logging into your CC online account.)

5. Put a fraud alert on your credit record. Visit https://www.consumer.ftc.gov/articles/0497-credit-freeze-faqs to learn more and how to take this step.

6. Put a freeze on your credit record. The Link in #5 tells how to do this also. Note: unfreezing your credit can be difficult, so make sure this is the right step for you before proceeding. For example, you don’t want to freeze your credit if you are planning on applying for a loan or moving soon (you need your credit for many things, such as setting up utilities at your new home, switching cell phone contracts, applying for a job, etc.).

7. File your taxes as soon as possible next year, especially if you normally get a refund. Tax fraud is on the rise so if your information has been compromised you want to file before a fraudster beats you to it.

I hope this helps. Here are a couple of resources that I recommend reading for more information on protecting yourself from identity theft:

https://www.usa.gov/identity-theft
https://www.annualcreditreport.com/protectYourIdentity.action
https://www.consumer.ftc.gov/articles/0151-disputing-errors-credit-reports

 

The Right Things to do in a Volatile Market

February 11, 2016

“Don’t panic.”
“Don’t sell at the bottom.”
“Don’t try to time the market.”

You’re used to being told what you shouldn’t do when the market is falling.  Today I’d like to talk about the right things to do in a volatile market.

The Market is Cyclical:  Expect ups and downs

Before we discuss the right things to do in a falling market, a quick reminder that the market is cyclical.  That means it will go up AND down.  As much as we would all love the market to go up all the time, that’s just not realistic.

So what is realistic?  Market history shows that declines of 5% occur in 19 out of every 20 years.  Declines of 10% or more occur more than every other year, declines of 20% or more occur one in five years, declines of 30% or more occur one in twelve years and declines of 40% or more occur one in fifty years.

Market Declines

Based on this data, declines in the market are not only possible, they should be expected.  So instead of panicking every time the market goes down, why not take advantage of it?

Risk Tolerance and Asset Allocation

The first thing you should do when the market is falling is to review your portfolio to make sure it matches your risk tolerance, time frame and goals.  If it doesn’t, then some rebalancing may be in order.

Most people have a pretty good idea of whether they are an aggressive or conservative investor.  However, if you’d like some help with this, there are many risk tolerance forms online such as Vanguard’s tool at https://personal.vanguard.com/us/FundsInvQuestionnaire.

At times like this it’s not unusual for people to want to take their money out of the stock market and park it in CDs or money markets or even under their mattress.  However, it’s important to remember that you need some growth in your portfolio in order to stay ahead of inflation (especially since most savings and money market accounts are paying less than 1% these days); however, you can take less risk in your portfolio and still earn moderate returns over the long run.

Here’s a chart of various portfolios (based on the percentage of stocks vs. bonds) for the period ending December 31, 2014.  As you can see someone who had 40% stocks and 60% bonds earned the same amount as someone who had 80% stocks and 20% bonds over the 10-year average period.  Sure the more conservative investor made less during the raging bull market of 2009-2014, but the long-term growth of your portfolio is what matters, not what you made last month or last year.

Return 100% Stocks / 0% Bonds 80% Stocks / 20% Bonds 60% Stocks / 40% Bonds 40% Stocks / 60% Bonds 20% Stocks / 80% Bonds
1-year 1% 2% 1% 1% 1%
3-yr ave 15% 11% 9% 6% 4%
5-yr ave 12% 9% 8% 7% 5%
10-yr ave 7% 6% 6% 6% 5%
Worst 1-yr -37% -32% -19% -10% -3%

Another benefit is that the more conservative investor lost much less than the more aggressive investor.  From the table you can see that the person who had 80% stocks lost 32% in the worst 1-year period (2008), while the person who had 40% stocks only lost 10% during that same time period.

Time the Market

Yes, you read that right.  I said “time the market”.  But we’re going to do it the right way, not the wrong way.  The wrong way is selling at the bottom and then jumping back in after the market has already recovered.  Studies show that people who try to time the market lose an average of 50% more than people who stick with their investment plan.

Having said that, what if you need to rebalance your portfolio because it doesn’t match your goals?  Or what if you are retired and need to raise cash for next year’s living expenses?  You may need to make some changes when the market is down, whether you want to or not.

However, you can be strategic about when you make those changes.  As you can see from the following chart, the market is very volatile right now.  Much like the weather in Missouri, if you don’t like it, wait a few days and it will change.  With large swings in the market, you should try to time any selling on the up days rather than selling on a large down day.  While it’s not as ideal as waiting for the market to recover from its current correction, its far better than selling at the bottom and locking in large losses.

On the flip side, if you’re young and have a long way to go until you retire, you should take advantage of the down market to buy more stock (see Buy Low, Sell High below).  So instead of timing the market in a bad way (and locking in losses), you can take advantage of the low market to increase your portfolio over the long run.

SPX 2 hour chart

Buy Low, Sell High

If you are still many years away from retirement, you should be glad the stock market is down!  Remember, when the stock market is down stocks are on sale.  Which would you rather pay… $100 for a new pair of shoes or wait until they are marked down to $50?  $50 of course!  That’s exactly the same mindset you should have when it comes to the stock market.

If you are investing regularly in a 401K, you are already doing this (it’s called dollar cost averaging and it basically means that you are buying more stocks when the market is down and less when the market is up).  However, you could be more proactive and invest even more in the market when it is down by increasing your 401K contributions, investing in a Roth IRA or just by buying a stock mutual fund.

Raise Cash

People who are already retired or close to retirement should aim to have the next 12-24 months of living expenses in cash.  This is to help keep you from having to sell when the market is down.  If you have a large pension or your Social Security benefits cover most of your living expenses then you may not need as much cash, but in general retirees should try to maintain 1-2 years of living expenses in cash.

The best way to do this is to save any current surplus (if you are still working or if your monthly income exceeds your expenses).  However, if you need to raise cash to meet this rule of thumb, remember to do it strategically as described above.

Tax Planning

A downturn in the market could be an opportunity to reduce your taxes.  If you have investments outside of retirement accounts, consider taking losses for tax purposes.  This is especially helpful if you have a large holding in one stock or one mutual fund that you’ve been meaning to reduce.

Just remember to avoid the wash sale rules, which state that losses will be disallowed if you sell a security and immediately purchase a substantially identical security.  For example, if you sell 100 shares of Walmart stock to take the loss for tax purposes you must wait at least 30 days to purchase new shares of Walmart stock.  However, you can invest in a different company or a large cap stock mutual fund without triggering the wash sale rule.

Also, this works best when you have capital gains to offset.  Remember that you can only deduct up to $3,000 of capital losses against ordinary income (wages, pensions, Social Security, etc.) so the benefits of tax loss selling can be limited.

Another way to take advantage of a lower market is to do Roth IRA conversions.  When you convert money from a traditional IRA to a Roth IRA you have to pay taxes on the entire amount converted.  So if you have a $10,000 IRA that you’ve been wanting to convert and the value of that IRA has gone down to $8,000, converting at the lower value will reduce your taxable income by the decline in value of the IRA.

Reduce Your Investment Costs

There are many different types of investment costs.  Mutual funds have an annual operating expense, you may pay transaction fees when you buy and sell investments, or you may pay a monthly or quarterly fee to an investment manager.

These fees may not seem like a big deal when the market is going up, but when you are losing money you may want to rethink the investment fees you pay.  High fees can have a large impact on your portfolio over the long run, so you should minimize your fees whether the market is going up or down.

Annual operating expenses on mutual funds can range anywhere from 0.08% all the way up to 2.5%.  While some actively managed funds (with higher fees) actually earn those fees, it’s hard to outperform the market over a long-term consistent basis.  With that in mind, consider investing in low-cost index funds or exchange traded funds (ETFs).

If you are working with an investment manager, you could be paying anywhere from 0.5% up to 1.5% annually to that manager.  Again, some investment managers do a great job and are earning that fee, but many others aren’t even keeping up with the market.  You should review the fees you are paying and determine if you would be better off investing on your own or working with a fee-only financial planner (who charges by the hour or project instead of based on your asset value).

Defer Major Purchases and Prioritize Investments

“Many investors don’t realize that a large percentage of their long-term investing gains are made during a bear market. A bear market is the time to be pouring money into the market, buying low, rather than taking it out. Thus, it is a great time to defer some of your major purchases. This is not the time to buy a new car, purchase that boat you’ve had your eye on, remodel the kitchen, or take that dream trip to Tahiti. This is the time to fund your Backdoor Roth IRAs, accelerate your 401(k) contributions, start that taxable investing account “.  This is an expert from Physician’s Money Digest’s article 6 Things to Do in a Bear Market

This advice can apply to both retirees and people who are still in the accumulation phase.  If you are retired, you should try to avoid taking large withdrawals when the market is down.  If you had a family vacation, home improvement or other large purchase planned and the market declined right before you needed that money you should try to delay the purchase until the market has recovered.  I know this is easier said than done, but it could make the difference between running out of money during your lifetime or not.

Okay, so that was really a “don’t” not a “do”.  So here’s the thing to “do” part: If you’re in the accumulation phase, consider using funds that were designated for large purchases for investing instead.  I realize that investing when the market is down isn’t nearly as fun as taking a beach vacation or buying a new car, but it can boost your long-term returns significantly.

Remember the Long Term Trend is Up

Above we talked about how often the market can experience corrections.  While it’s important to understand that the market moves in cycles and it won’t always be going up, it’s also important to remember that even with market corrections, the overall long-term trend of the market is up.  To put the market into perspective, consider the following (source: Horsesmouth.com):

  • The average intra-year drop since 1980 has been 14.2%, yet annual returns have been positive in 27 of those 36 years.
  • Over a 10-year period, an average investor in the S&P 500 index would have experienced positive returns 95.1% of the time.
  • A review of all 20-year periods from 1950-2015 showed an average annual return of 8.9% per year for a 50/50 portfolio, with 5% as the lowest annual return for that time period. If you consider that the US economy experienced a major recession during this period, this return becomes even more impressive.

So while we may be in a correction right now, it’s the long-term that matters not what the market does today or this week or even this month.

Resources:

I hope shifting your focus from what you shouldn’t do in a down market to what you should be doing has been helpful.  For more information on dealing with market volatility, here are some articles for you to read:

Market Volatility: What Investors Should Know
A Rocky Market Action Plan for Retirees
6 Things to Do in a Bear Market

Also, many of the points I made in August – when the market first started going down – are still relevant, so please revisit that article here: https://www.beacon-advisor.com/2015/08/stock-market-update-dont-panic/

And finally, if you have any questions or would like to review your portfolio, please don’t hesitate to contact me.

Got Retirement Questions? Chat with an Expert for Free on Feb 7 and Feb 12

January 27, 2013

Kiplinger magazine and the National Association of Personal Financial Advisors (NAPFA) are teaming up for the annual Jump-Start Your Retirement Plan Days to bring you free one-on-one personal finance advice.

NAPFA members (including me!) from across the U.S. will be standing by to answer your questions from 9:00 a.m. to 5:00 p.m. ET on Thursday, February 7 AND Tuesday, February 12, 2013.

This year, Jump-Start Days will feature four separate chat rooms, each hosted by expert financial advisors:

Chat Room #1: Taxes and Retirement

Chat Room #2: Saving for Retirement

Chat Room #3: Income in Retirement

Chat Room #4: Other Financial Challenges

The chat rooms will be open a week in advance so you can get your questions in early.  To submit a question, simply follow the link above that best fits your question.  Advisors will answer questions in the order they come in.  

I will be in the Taxes and Retirement chat room from 11-1 on February 7.  I look forward to answering your questions!

Read more at https://www.kiplinger.com/article/retirement/T047-C000-S001-jump-start-your-retirement-plan-days.html#D3iXVK9A45kfobIk.99

Unemployment Benefits To Be Extended

November 14, 2009

There’s at least a glimmer of hope for people who are currently unemployed.  The Senate voted on Wednesday to extend unemployment benefits by up to 20 weeks for people currently collecting unemployment.  Most states will receive a 14 week extension, but states with unemployment rates in excess of 8.5% will receive an additional 6 weeks, for a total extension of 20 weeks.

People who have already exhausted their unemployment benefits can reapply for additional benefits under this bill.

The bill still has to get through the House and then must be signed by the President, but it is not expected to change much before the final passing.  This is expected to be the last extension for unemployment benefits.

Read more

Making Safer Investment Decisions in 2009

January 21, 2009

It’s hard to say what 2009 will look like. While there are still several concerns (the housing market, rising unemployment, etc.), there will also be considerable government intervention to help improve the economy this year, both in the U.S. and worldwide.

So what should you do in 2009 to make your portfolio and overall financial picture better? Here are some general ideas to employ as markets and economies hopefully stabilize in the New Year:

Start with a plan (or review an old one): If you’ve worked with a financial planner in the past, now is a good time to review your plan to make sure you are still on track to meet your goals. If you haven’t worked with a financial planner before, or if you haven’t prepared a financial plan before, it might be time to meet with a Certified Financial Planner™ to create a plan. Much of the riskiest investing, overbuying and panic selling during the late 1990s and early 2000s could have been avoided if individual investors had sought advice for achieving long-term specific goals such as retirement or a college education.

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Should You Move to “Safer” Investments?

January 17, 2009

After watching their 401K balances shrink up to 40% in 2008, many people are wondering if they should change their allocation to include more “safe” investments, or if they should move completely to “safe” investments then move back into the market later.

Here’s what Walter Updegrave with Money Magazine has to say about this:

But as understandable as the urge may be to transfer all your money into the investments that seem safest – stable value funds, capital preservation funds, money market funds and the like – that would be a mistake.

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When the Road to Investing Gets Bumpy

September 24, 2008

Investing in the stock market is a lot like driving on a long road trip.  At some point, you’re going to run into pot holes and rough patches.  When that happens, you should definitely drive with more caution, but you have to keep on going if you want to reach your destination.

Similarly, if you’re investing for long-term goals such as retirement, you will encounter some market volatility, probably several times along your journey.  While you may be tempted to pull over and wait out the rough times, it will delay or may even prevent you from reaching your goals.

So what should you do when the road to investing gets bumpy?

Buy Low, Sell High:  The whole premise behind investing is to buy low and sell high.  You can’t do that if you pull out of the market or stop investing when the market goes down.  If you’re investing for the long-term, you should be glad when the market is down, because then stocks are “on sale” and you can pick up more shares at a lower price.  Who doesn’t love a good sale?

Diversify: One of the best ways to defend your portfolio against market losses is to have a portfolio that is properly diversified.  If you review the history of the stock market, you’ll see that the best performing assets vary from year to year and that it’s not easy to predict which asset class will perform well in any given year.  Therefore, by having a mix of asset classes, based on your risk tolerance, your goals and your timeframe, you are more likely to meet your goals.  In addition, having a mix of asset classes reduces your risk of loss, since you won’t have all of your eggs in one basket.

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Smart Money Moves to Make in Tough Times

September 24, 2008

The recent financial news – banks failing, the Treasury taking over Fannie Mae and Freddie Mac, the stock market dropping several hundred points in one day – may have you feeling a bit helpless when it comes to your finances.

While you may not be able to make the market go back up or keep banks from failing, there are steps you can take to make your finances as strong as possible in these tough times:

1.  Fund your emergency fund.  It’s more important than ever to have an emergency fund, in case you lose your job, have unexpected medical expenses, or have a major house repair, so that you don’t have to sell investments (while they’re down), or rack up credit card debt.  The general rule of thumb is to have three to six months of living expenses set aside for emergencies.

2.  Reduce debt.  If you have high interest credit card debt, the greatest return you can get right now is to pay off that debt.  Start by calling your credit card companies and asking for a lower interest rate (if you have a good credit score, you could get your rates down to 8-12%, which is much better than paying 20+ percent).  Then make the minimum payments on all of your credit cards except the highest interest rate card until paid off.

3.  Review your spending.  I’m always amazed at how many people have no idea where their money is going each month.  How can you reach your goals if you don’t know where your money is going?  If you aren’t already doing so, now is a great time to start tracking your spending using a software program (such as Quicken) or even spreadsheets that you create on your own.

4.  Increase your retirement contributions.  Many people panic and stop investing in their 401Ks or other retirement accounts when the market is down.  When the market is down is actually the best time to invest.  Remember “buy low, sell high”?  Well, the time to buy low is when the market is down!  Make sure that you are investing in a diversified portfolio that meets your risk tolerance, time frame and goals, and that you rebalance once a year.

Read more

Keeping Your Money Safe

September 24, 2008

With everything going on in the financial world lately – the Treasury taking over Fannie Mae and Freddie Mac, the collapse of Lehman Brothers and IndyMac Bank, and the government bailout of AIG – it’s no surprise that investors are wondering if their money is safe.

Thankfully, there are safety measures in place for various types of accounts and investments.  Here is a rundown of the different safetynets in place for each type of account or investment you may have:

Banks:  Bank deposits are ensured by the Federal Deposit Insurance Corporation (FDIC).  Basically, the FDIC insures deposits up to $100,000 per owner, per bank.  If you have $100,000 or less in your name at any FDIC-insured bank or savings association, you have nothing to fear.   Since the limit is per owner, that means you could actually have more coverage than you think (for example, if you and your spouse have a joint account with $300,000 at one bank, $200,000 is insured – $100,000 for each “owner”).

In addition, if you have certain types of retirement accounts, such as an individual retirement account, you’re eligible for even more coverage – up to $250,000 per owner, per bank.  However, the FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities and municipal securities, even if you bought those investments at an FDIC insured bank.

If you want to make sure that your deposits are below the FDIC limits, please visit EDIE The Estimator.   EDIE the Estimator can calculate your FDIC insurance coverage for each FDIC-insured bank where you have deposit accounts.

Credit unions have similar coverage through the National Credit Union Administration (NCUA).

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Debit Card Fraud More Damaging than Credit Card Fraud

August 6, 2008

While I was on vacation this week, some thief was busy emptying out my checking account.

I have always loved the convenience of debit cards, but this recent experience has me re-thinking the cost of that convenience.

First, your liability if you are a victim of debit card fraud is greater than if someone steals your credit card or uses your credit card to make unauthorized purchases.

With credit cards, your liability for unauthorized transactions is limited to $50. However, most major credit card issuers have a zero liability policy, so you typically aren’t liable for anything if you are a victim of credit card fraud.

Read more

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Services

Beacon Financial Advisors, LLC, is a fee-only financial planning and Registered Investment Advisory firm headquartered in Lee’s Summit, Missouri and serving the greater Kansas City area.

The firm offers comprehensive financial planning services. Beacon advisors work solely for their clients. Click here to learn more about our services.

About Us

Kristine McKinley, CFP®, CPA, is the founding principal of Beacon Financial Advisors, LLC, an independent, fee-only financial planning firm located in Lee’s Summit, Missouri and serving the greater Kansas City area.

Kristine focuses on providing fee-only financial planning, investment advice, and tax preparation to individuals and families from all income levels.  About Us

In the News

Investment News – Kristine McKinley discusses the 0% Social Security COLA (for 2016) in No Social Security cost-of-living adjustment in 2016.

Kiplinger Magazine/NAPFA – Kristine McKinley answered reader’s tax questions during the 2013 Jump Start Your Retirement Plan Days sponsored by Kiplinger magazine and the NAPFA Consumer Education Foundation.