Schwab Fraud Prevention: A Must-Read for DWM Clients!

Schwab app logoThis month I attended the annual Schwab Solutions event in Chicago. It is an excellent opportunity for DWM to make sure we are up to date on all the recent enhancements to Schwab’s technology offerings, which we offer to our clients. The focus was on cybersecurity and fraud prevention: Cybercrime is now more profitable than the illegal drug trade. That’s scary. In addition, “Financial services firms are hit by security incidents a staggering 300 times more frequently than businesses in other industries, with attack patterns changing frequently to outwit IT pros, according to Websense.” Phil Muncaster, Info Security Magazine. One great way to help prevent fraudulent wires or identity theft is to take advantage of electronic signatures and approvals through the Schwab Alliance website and the Schwab Mobile app on your smartphone. No pen needed! They also have some other really handy features too, like remote deposit (great for those April 14th IRA contributions!). It’s quick, easy, and, most important, secure. Schwab even has a guide that will walk you through setting up both.

On the Schwab Alliance website, you can view real-time information, nickname your accounts, retrieve 1099s, enroll in paperless delivery, approve wires, electronically sign applications, and more. You can even update your contact information (no need to sign a change of address form!)

Schwab also offers a very useful app. As with the website, you can see your Schwab accounts, approve wires, and electronically sign applications. And you can remotely deposit checks. It’s available for iPhone/iPadAndroid, & Kindle.

Schwab screen shot account list             Schwab screen shot check deposit             Schwab screen shot market overview

The electronic approval tools are a key feature of the website and app. It enables you to access forms and wire requests securely by logging directly into Schwab with your credentials, thus helping prevent fraud. Besides coming to sign in person, this is the most secure method. Email was not designed with security in mind, and accounts can be easily hacked. You may not realize what kinds of data a thief could mine from your sent and filed emails. It could be enough for them to commit wire fraud or steal your identity. For this reason, it’s best to avoid using email for anything that contains sensitive information.

So what’s the next step? Follow the guide to set up your Schwab Alliance credentials and app on your phone. Make sure your cell phone number and email address are up to date (which can be done through Schwab Alliance). That’s it! The next time we need you to sign a Schwab form or approve a wire, you will receive an email with a link to the Schwab Alliance login page. You will also receive an alert on your phone screen prompting you to log in to the Schwab Mobile app to approve/sign digitally. It will walk you through the signing or wire process; just click a few buttons and you’re done! We can even include DWM forms in the same ‘envelope’.

We are confident the Schwab Alliance website and mobile app will save you time and give you peace of mind.

 

For more on preventing identity theft and fraud, see my blogs on two-step verification and identity theft.

REMINDER: Markets Don’t Go Straight Up!

Most equity markets were down 3% today, and most equity are markets down 5% this week! It’s the worst week for the Dow since 2011! The Dow is now in correction territory. What’s going on???

It’s been an unusual year. January and February were quite good. But not much has happened since then until this week’s market sell-off.

China’s apparent slow-down seems to be the main catalyst to what triggered this week’s ugliness, but we continue to have the uncertainty as to when the Fed will raise rates, if/when Greece will leave the Euro, and mixed second quarter earnings reports and economic news.

It is times like these that investors need to remember that markets don’t just go straight up. Markets don’t work that way- they go up and down! Not every calendar year can be an “up” year. As a long-term investor, you not only stay invested, but even may see this as an opportunity to buy more.

There have been over a dozen market pullbacks of 5% or more since March 2009. This is another one! Generally, when the market comes back, it does so quickly. So, it’s a fool’s game to try to time the market and jump in and out of it. No one has a crystal ball. Furthermore, we know that over time that staying invested is your friend. Studies show that just missing a few days of strong returns (which we could very well get next week or later this month), can drastically impact overall performance.

The market constantly over-reacts and then reverts back to the mean. Do not get caught up in emotion and sell and buy at the worst times. Unfortunately, humans are not wired for disciplined investing and usually trade poorly based on fear. They wind up selling at the lower prices (on fear) and buying at the higher prices (on elation) per the graph below.

Emotions

I’m sure many readers are nervous after this latest week with all this uncertainty in the air. However, if you use a wealth manager, like DWM, we can help you focus on what can be controlled:

  • Create an investment plan to fit your needs and risk tolerance
  • Identify an appropriate asset allocation target mix
  • Structure a well-balanced, diversified portfolio
  • Reduce expenses through low turnover and via passive investments where available
  • Minimize taxes by using asset location, tax loss harvesting, etc.
  • Rebalance on a regular basis, taking advantage of market over-reactions by buying at low points of the market cycle and selling at high points
  • Stay Invested

In closing, a pullback / correction like this one might actually be a very healthy thing because it may signify that the underlying assets’ valuation is getting back in line with fundamentals. So don’t get anxious over this latest short-term market volatility. By all means, there is a lot of “noise” this month. We’ve seen “noise” before and we’ll see “noise” again. Instead, remember that, over the long-term, the markets have rewarded discipline, through world events of all types. Check out the graph below, put your mind at ease, and have a great weekend. Let us deal with the “noise” and give us a call if you’re still feeling anxious next week.

Markets Have Rewarded Discipline

Ask DWM: What Does China Devaluing its Currency Mean to Us?

Barron's Chinese YuanGreat question. Thanks. China is a very big deal. Much bigger than Greece (see DWM blog 6/30/15). China is currently the world’s second largest economy, about 60% of America’s GDP. It is expected to surpass the U.S. in nominal terms in 11 years. And, by 2050, China is expected to have a population of 1.4 billion (vs. the U.S. at 400 million) and GDP 50% larger than the U.S. For the last 25 years, China’s economy has grown at a 10% annual rate. In 2015, the growth is expected to be 7%.

China devaluing its currency last week came as a big surprise to many. In our blog of July 29th, we featured an article about the Big Mac Index with the Economist’s report showing that, on an adjusted basis, the Chinese yuan was undervalued by 9%. Until last week, the Chinese government’s strategy has been to keep their currency within a narrow trading band against the dollar. And, then last week, the news came out of Beijing that the country will now link it more closely to market forces. There were two major reasons.

First, they are trying to keep their growth and employment high. As we discussed in that July 29th blog, the WSJ Dollar index has risen 22% in the last 12 months. Since last December, the dollar index was up 9% as was the Chinese currency, the renminbi, otherwise known as the yuan. This meant that the cost of Chinese goods for people in the Euro zone, Japan, or the UK was 9% more than it was at the beginning of the year. As a result, Chinese goods have become more expensive abroad, as American goods have. And, this is hurting the Chinese economy big-time in growth and employment. Exports dropped by 8% in July. Furthermore, China experienced a stock market crash in the last few months as well.

One of the key tools that countries use when they are experiencing a downturn is to devalue their currency. Typically, this is what allows countries to stay competitive in the market place by making it cheaper for their customers to buy their products. Being tied to the USD wasn’t working. So, last week, the Chinese government allowed the yuan to become more market driven and it declined in value by 2%. At this point, it is difficult to determine what the future value of the yuan will be. The 2% is not in itself a big deal, but it may lead to a 10% devaluation or more (Barron’s August 15th). However, the linking to market forces is a big deal and represents the second reason.

China’s government wants its currency to become globally pre-eminent. They want the renminbi to be recognized as a reserve currency, along with the USD, the euro, the yen and the British pound sterling. Two weeks ago, Christine Lagarde, head of the IMF, said that the renminbi was not quite ready for inclusion in the basket of securities the IMF uses for “special drawing rights” because China needed to make its currency more “freely usable.” And the policy change last week, by moving to a more market based valuation, is a step towards inclusion.

So, what does the devaluation and potential slowdown in China mean? In the long-run, it’s tough to say. In the short run, it’s another source of concern and uncertainty for investors. Uncertainty and doubt has been the mood of the markets since March, when strong economic data in the U.S. caused the Fed to start talking about increasing interest rates. That uncertainty was followed by the uncertainty about a possible ‘Grexit’. And, now we’ve got China. At other times, the devaluation might have been seen by investors as good news- that China now is using a competitive tool to stimulate growth. But, instead it was received as another uncertainty, which, together with the other concerns have caused stock markets to go sideways for over 5 months now.

Here’s a great example: Apple stock. On July 21st, Apple reported quarterly results that were “amazing”- revenues up 33% and earnings per share up 45%. Yet, investors focused on the lower demand for the iPhone and the smartwatch not meeting expectations. Apple stock has dropped 11% in the last four weeks.

It’s a frustrating time for investors. Some are quick to start extrapolating that the last five months of flat markets may extend for years. It’s a frustrating time for wealth managers, like DWM, as well. However, we know, as Barry Ritholtz pointed out in his Bloomberg column last week, time is our investing ally. People are often stuck in the short-term, focusing on recent events and projecting those out for the future. Just because the markets have gone sideways for the last five months, does that mean they will continue to languish indefinitely? Yet, despite its lack of growth the last five months, the world stock markets have been up over 15% per annum since March 2009. In the last 40 years, including the dot.com bust and the financial crisis in 2008/9, a diversified, balanced investment portfolio has likely increased more than 7% per year.

We know that in the long-term that the power of compounding is in our favor. Yet, that mathematical concept can be difficult to accept emotionally at times like this. It is now one of our chief jobs as total wealth managers to stress that it is important to stay disciplined, stay focused on the long-term, stay invested and not let emotions drive irrational behavior based on short-term events.

Strategies to Stretch Your Nest Egg

cash as nest for eggsOne of the most emailed NYT articles in the last week has been Tara Siegel Bernard’s “6 Strategies to Extend Savings Without Working Longer.” We thought today we would take a look at her six suggestions and critique them.

Ms. Bernard’s suggestions:

Practice Living on Less. This is a great strategy to consider. Over the years, we’ve reviewed the finances of hundreds of clients and prospects. It’s amazing to see how little some spend, even when they could spend more. Of course, then there are others that spend vast sums of money and still seem to need more money to be happy. And, of course, there are lots of Goldilocks situations, whose spending seems “just right,” providing all they need to do all the things they want to do in a cost efficient manner, without wasting money.

Maximize Social Security. This is another very important strategy. Many couples are scheduled to receive over $1 million in social security benefits in their lifetimes. And, handled properly, they might increase that by 15 to 20%. Social security is a fairly complicated maze of rules. We use a software to investigate scenarios for clients to illustrate the impact of planning strategies. Of course, the 800 pound gorilla in the room is when the social security system will change. It’s a hot current topic, even in Presidential debates. Some proposals would raise retirement age, suspend COLAs, and limit or eliminate social security for those with retirement income and assets above a certain amount. Therefore, the analysis of maximizing social security needs to be reviewed while looking at possible changes to social security potentially impacting couples with significant anticipated retirement income and/or assets.

Reduce Taxes. Another very important strategy. Like the first two, this just doesn’t happen; it requires planning. Again, there are lots of different planning ideas if income declines at retirement time. These may include possible Roth conversions, deductible rental losses, starting a consulting business and making sure your investments are allocated tax-efficiently. It’s a good idea to review your income taxes at least twice a year. Once early in the year when your returns are being prepared, and again in the late summer or early fall. Your wealth manager may have an idea or two for you and/or your CPA to consider at both times of year.

Get a Reverse Mortgage. Home equity is a huge asset for many. And, more and more people are “aging in place.” We’ve been modeling “reverse mortgages” for clients using our MoneyGuidePro software for years. One approach is a standby reverse mortgage, where borrowers obtain a line of credit to be used as needed. A reverse mortgage doesn’t have to be paid back until the borrower dies or moves out of the house.

Buy an Annuity. We don’t agree with Ms. Bernard on this one. You’ve read our blogs on annuities in the past. Annuities really appeal to folks for their simplicity and the idea that they get a “payment for life.” Here’s the problem: an annuity locks up your money and pretty much pays you back your principal plus a tiny (usually 2% or less per year) return. Can you imagine what happens if interest rates rise to double digits (like 35 years ago) and all of your money is now coming back at low fixed rates and you can’t get out of your contract? Here’s a better solution: build your own “liquid” annuity by creating a diversified investment portfolio from which you draw monthly amounts. And, this can be done without the huge commissions, costs and inflexibility of an annuity.

Radically Downsize. We don’t see this as an appropriate strategy for our clients. In Ms. Bernard’s example, she has a couple selling their farm in Essex, NY and moving to the Philippines, where they could afford to live on $2,000 a month. While their monthly overhead has been reduced, in my opinion, they are incurring a huge “cost” of moving away from family and friends at a very important time of life. If Ms. Bernard had eliminated the word “radically,” I would have agreed with her that this is a strategy to consider. Many couples should consider downsizing or right-sizing in retirement. Equity developed from this process could provide funding for other goals they might want.

Overall, I do commend the article by Ms. Bernard. She outlined some really good strategies and we’ve been recommending for decades. What she doesn’t suggest though is a strategy perhaps more important than her six:

Start your Long-Term Planning Early. Start in your 20s and early 30s to identify your needs, wants and wishes. Calculate what you might need over your lifetime. Develop a plan to get you there. Start saving, even if it’s a small amount, early on. And monitor your plan at least annually and update as you go. Don’t wait until you are on the brink of retirement to ask: “How do I stretch my nest egg?” Rather, as a young person, ask: “How soon can I achieve financial independence?” If you can, work with a wealth manager to help you objectively do this. At DWM, long-term planning is one of our major strengths and passions, for clients of all ages.

Download the New and Improved DWM App!

App icon2If you haven’t yet downloaded the DWM app, now is the time! It has just been updated with some great new bells and whistles.

You can see all your accounts in one place, check balances and positions, see performance, run reports, view statements, and contact us. It’s available for iPhone/iPad & Android.

Here are some sample screen shots:
DWM screen shot Menu       DWM screen shot Accounts

DWM screen shot Holdings       DWM screen shot performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Feel free to bring your tablets and smart phones to our meetings. We would like to make sure you are able to login and answer any questions you might have. The new app is really a fantastic tool to keep current with your portfolio. We’re sure you’ll love it.