“There are risks and costs to action. But they are far less than the long-range risks of comfortable inaction.”
-John F. Kennedy
Ron did not like to take risks with his money. In other areas of his life, sure. He loved roller coasters, drove a little too fast and met his wife Donna when she was on a date with another man. But not with money – no sir. So of course, Ron was thrilled by the retirement plan offered at his company, work hard and retire with a Pension payment, add in Social Security income and a little savings and here we have a no risk, no worry retirement – maybe they’ll learn to surf. But the world doesn’t always follow our rules, before Ron retired his company decided to buy-out the pensions of all their employees – instead of a steady income stream for Ron and Donna they would give Ron a big, lump sum check when he retires, in this case Ron got a full million dollars. Now remember Ron doesn’t like financial risk, so when he retired on November 1, 1999 he put all his money into ten year U.S. Government bonds, with a yield of 6.2% Ron had more than enough money to live on – in fact he only needed about $4,000 a month from the interest he was earning, allowing the rest to build up in his account. At the end of the ten years Ron had gotten his income and added an additional $185,600 to his principle – but once again the world got in the way. In November of 2009 when Ron went to replace his maturing bonds with a new set of bonds backed by the full faith and credit of the U.S. Government – the prevailing rate was only 3.2%. Even using all his money to generate income would only get Ron a little over $3,000 a month. Everything seemed so much more expensive now than when Ron first retired, and he just got a 25% pay cut. But Ron and Donna were troopers, they’d done a lot of traveling and been generous with their kids and grandkids for the last decade, so with a little cut back in their lifestyle everything would be fine. When Ron’s second round of bonds matured just a few weeks ago however, he was despondent. Ron doesn’t like to take risks with his money, but the ten-year treasury bond rate is only 1.72%, meaning if Ron reinvests his principle into those bonds his income will be cut once more, to only $1,700/ Mo. An almost $60% pay cut from when he first retired. Sure, Ron and Donna are in their mid-80’s now, but Donna’s mother lived to 102 and Ron feels great, he still plays pickle-ball three days a week and just the plane tickets to visit the grandchildren over Christmas are almost $1,000! Ron doesn’t like to take risks with his money, unfortunately that’s all Ron has been doing for the last twenty years.
There is no Ron or Donna, at least no Ron or Donna I know. But a less dramatic version of this story has been playing out in this country for the last twenty years and even more so over the last decade. Where you can you get yield, income, interest on your money? Can you make enough money to save for retirement or live once you are in retirement without exposing yourself to stock market risk? This is the sentence where I’m supposed to say “Of course you can just do this magical thing” but that would be misleading. The real answer is, “No, you probably can’t save enough for retirement or live once in retirement without exposing yourself to stock market risk.” Are there ways to try and lessen that risk? Yes. Can you trade off other things, like liquidity or the size of your children’s inheritance to improve your odds of success? Yes. But can the vast majority of people get what they need completely through investments that are guaranteed by the U.S. Government or insured by the FDIC? No. At today’s CD rates, you would need to put $600,000 in the bank just to get $1,000 a month of income – before taxes. As unfortunate as it is, people are having to take more risk with their portfolios to get the result they need. Some people, me included, believe this is why the stock markets have been so resilient lately. Yes, there have been big sell-offs; a true correction this time last year and then pretty big downturns in late May, and then early August and then the beginning of October – all followed by rallies and new highs. These downturns seem to match the actions or rumors of actions from the Fed, interest rates were raised last fall, you could suddenly get government guaranteed interest rates of 3% –and the stock market fell. Then the Fed reverses course and rates go right back down – and wouldn’t you know it the markets rally back up. Better to get a 4% dividend from a stock, with all the risk that implies, then only 1.5% in a bond is what the markets seem to be saying. Negative yields in Japan and Western Europe where lots of investors have access to our stock markets can’t be hurting matters either.
There are different types of risk. Ron was a perfect example. Ron was okay with personal risk, liking his amusement parks and fast cars – and even okay with social risk, winning Donna away from that bore she was dating – but he didn’t like risking his money. What Ron didn’t know is that there are different types of risk with your money as well. Volatility is not the only financial risk, there is liquidity risk – that’s when your money is tied up in something so even if it’s earning a good return, if you can’t access it when you need it; that‘s a risk. There is also interest rate risk – this is what Ron subjected himself to – the risk that you can’t reinvest your money at the same rate when your investment matures. Inflation risk is another one that Ron was exposed to – you can’t just spend all the earnings of your investments because things are likely to be more expensive in the future. The key to investments is balancing out these risks, not avoiding them. Avoiding one naturally exposes you to another, you hope, and history as a guide shows us that all these risks don’t manifest themselves at the same time. A portfolio that balances these investment risks, combined with a retirement plan that balances the other risks in your financial life; taxes, regulations, medical costs and inheritance options is the only way to structure for the future. While things may seem more volatile, or riskier than ever before they only seem that way because we don’t know the future. Ten years ago, coming out of the financial crisis things were much, much more up in the air and much scarier at least in the investment world. But since we know that it got better, we don’t feel the fear or have the doubt and that makes today seem scarier. When things are scary people want certainty – this is why they can have negative rates in Europe, people would rather know they’ll get back 98 cents on the Euro for sure, then try and get a 2% rate and risk getting back nothing. But sometimes the only certainty is that you will, for certain, not have a successful retirement, and that’s what we are here to prevent.
We wouldn’t let our clients be like Ron and Donna – except for the roller coasters and surfing and other cool stuff. If you’re not a client of ours please give us a call to find out how to balance all these competing risks. See the next article for a completely different type of risk – the security of your email accounts.
Last month I wrote about some of the scams being perpetrated on people, especially older people in our society. As pernicious as those scams are, they are not all that common. What is very common, and we see a couple times a year, is having your email hacked or spoofed and us as your financial advisers getting emails that seem to be from you, asking for money. The following article was written by the security team at Commonwealth about what to do if you’ve been subjected to this fraud.
You’ve Been Hacked or Spoofed: Now What?
Unfortunately, many of us who become victim to any sort of information security breach won’t know until someone else tells us. For example, we might get a message or call from a friend asking why we sent that “spammy” email with a link to a free Amazon gift card. Have we been hacked? Spoofed? And how do we prevent it from happening again?
Here, we’ll discuss the difference between hacking and spoofing, plus provide some simple tips to help protect your personal information.
Spoofing Vs. Hacking
Let’s start by taking a look at what happens when you’ve been spoofed versus what it means to be hacked.
You might think of spoofing as something like falsifying a letter sent via the USPS. Anyone can write a letter, sign someone else’s name, and put that individual’s return address on the envelope. If you were to receive that phony letter, you would likely believe that it came from the individual who supposedly signed it and from the return address indicated. In reality, it could have been sent from anyone, anywhere.
Spoofers often forge the header information of the emails they send (i.e., the To, From, and Subject lines, as well as the time stamp and path that the emails took to arrive in your inbox). They do this in an attempt to make it appear as if their messages came from someone or somewhere you know (e.g., a friend or familiar organization like Bank of America). The goal? To get you to respond to their spam or to click on the malware-laden links or attachments in their phony messages.
When an email address has been spoofed, the spammer doesn’t gain access to your email account. Hacking, however, is a different story.
This is when a criminal
actually gets into your email account
. He or she can do this in a number of ways—by sniffing your activity on a public Wi-Fi network, through a phishing email, or via password-guessing software. Once in, the hacker will have access to all the information stored in your email account. This might include your contact list, bank account numbers, credit card information, online transaction receipts, and emails from other organizations confirming changed passwords (making it easier to identify other accounts of yours that can be hacked).
Unfortunately, there is no way to prevent spoofing. If your email address can be viewed publicly somewhere on the internet, someone can spoof it.
But there are steps that you can take if you’ve been hacked that will also help mitigate the risk of any future hacking attempts.
Change your password.
Here, you will want to include any passwords for other accounts that are the same or similar to the compromised password. In creating new passwords, avoid using dictionary words or anything personally identifiable (e.g., your birth date). Also, be sure that your passwords are
eight characters long and include upper- and lowercase letters, numbers, and special characters.
Modify the answers to your security questions
Either make up answers to the questions or add an extra letter or symbol to the real answers. That way, even if the hacker figures out the answers, he or she will still have a hard time accessing your accounts. For example, instead of answering “Jones” to the “What’s your mother’s maiden name?” question, add another symbol or character and make it “@Jones” or “JonesM.”
Set up multifactor authentication.
This feature requires you to provide more than a username and password to access your account. For example, an additional layer of authentication could be a passcode sent to your smartphone that you need to input when you log in.
Review your email account settings.
The hacker may have altered your account settings so that copies of received emails will be automatically forwarded to his or her account. So, even after you resecure your email account, the hacker can keep tabs on you. He or she could also have placed fraudulent links in your email signature and automatic replies. Be sure to check your settings and verify that these were not altered.
Run a virus scan.
It’s also possible that the hacker inserted malware into your system through your email account. This could enable him or her to conduct
meaning that all of your online activity would be automatically reported back to the hacker and allow him or her to collect even more of your personal information.
Ensure that there was no financial or personally identifiable information
in your email account.
If personal information was stored, such as your social security number (SSN), date of birth, or account numbers,
getting the compromised account numbers changed. In addition, have the banks or other organizations report the new numbers to you over the phone,
not via email
. Also consider credit monitoring, especially if all or part of your SSN was compromised.
To protect your personal information, be wary about connecting to public Wi-Fi networks and what you transmit over such networks, as this is one of the most common ways that cybercriminals obtain email addresses and passwords. In addition, be suspicious of unsolicited or spam emails. If you receive one from someone you know, let that individual know that his or her email may have been spoofed or hacked. By keeping these guidelines in mind, as well as the tips discussed here, you will be well positioned to keep your confidential information secure.
Matthew H. Keeling, CFP®
Keeling Financial Strategies, Inc.
759 Falmouth Road, Unit 2
Mashpee, MA 02649
Securities and Advisory Services offered through Commonwealth Financial Network, Member FINRA / SIPC, A Registered Investment Adviser
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All indices are unmanaged and investors cannot actually invest directly into an index. Unlike investments, indicies do not incur management fees, charges or expenses. Past performance does not guarantee future results. Forward -looking statements are not guarantees foo future performance and involve certain risks and uncertainties which are difficult to predict. Investments are subject to risk, including the loss of principal. Because investment return and principal value fluctuate, shares may be worth more or less than their original value. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Talk to your financial advisor before making any investing decisions. Commonwealth does not provide legal or tax advice. Please consult with a legal or tax professional regarding your individual situation. Fixed Insurance products and services offered through CES Insurance Agency and Keeling Financial Strategies, Inc.