Protecting the Elderly from Telemarketing Scams

The Elderly are frequent targets of fraud. Here is a very scary article from the New York Times. I recommend sending or reading this article to all your elderly relatives.

I also suggest you check the credit of all your elderly relatives if they will let you help them. See the blog article regarding Identity Theft.

I would also place all my elderly relatives on the Do Not Call List which should eliminate most solicitation calls. Telemarketing calls are a way many scammers bilk the elderly.

Since mail can easily be stolen, a secured (locking) mailbox is a great idea. I would also register all of my elderly relatives on the no credit card solicitation list. This list is legitamite and is endorsed by the Federal Trade Commission.

In fact, it would be smart to implement many of these ideas for yourself. A little time now could save you from becoming an identity theft victim

Five Common Investment Missteps That Could Derail Your Retirement

Here is my column in today's Contra Costa and Valley Times. They shortened the article considerably so I thought you all might enjoy reading the unedited longer piece.


Five Common Investment Missteps That Could Derail Your Retirement

As an investment manager and financial planner, I don’t know how many investment portfolios I’ve reviewed over the past 20 years. I consistently see the same missteps made by investors over and over again. These slip-ups can be avoided. Some of these are easy to fix and others may take time, effort and due diligence to resolve. Now that tax season is over, this is good time to turn over a new leaf and get your finances organized and well deployed. Here are some of the main missteps that I see frequently.

Misstep #1, A Trail of Accounts: When I meet with a clients to review their portfolio for the first time, I can expect to be handed a plethora of statements from different brokerage firms and 401(k)s from previous employers. There is no reason to have 10 different investment accounts. By having your assets strewn around so many places you’ve just made it impossible to monitor the performance of your investments and periodically rebalance. Get organized! Simplify your life by rolling your old 401(k) s and 403(b) s directly into an IRA at one brokerage firm. Open one brokerage account for your non-qualified (non-IRA) assets and consolidate. Two to three accounts are easier to follow than 8 or 10. In addition, there are definite advantages to having all of your accounts at one brokerage firm. Frequently, brokerage firms give investors a break in fees, higher money market rates and better service if all your accounts (IRAs, taxable brokerage accounts, etc.) are consolidated at one place.

Misstep #2, Track the Performance of Your Portfolio: Most investors do not know how their investments are performing. They do not know what their annualized rate of return is for each account much less the consolidated portfolio. Most people just glance at their monthly statements to see if their accounts are up or down but, they really do not know how they are doing. It is important to know your portfolio’s performance and how it compares to the major indices. Monitoring your portfolio’s performance is equivalent to knowing your batting average and how it compares to everyone else’s in your league. To be informed you need to know your stats and how they compare. If you don’t monitor your performance you won’t know what grade you received (an A or an F) and if you are on course to achieve your financial goals.

You can download this information into Microsoft Money or Quicken, and this software will calculate your return. After you have your total portfolio’s return, the next step is to compare it to the index returns. It is easy to find information on the major indices in your newspaper or on the internet. Websites like Yahoo Finance (finance.yahoo.com) and Google Finance (finance.google.com) can be very helpful in monitoring index and investment performance. Once you have the software downloads working, it will be easy to monitor your portfolio’s performance compared to the major indices.

Misstep # 3, Create an Asset Allocation: Even if they have only a few accounts, most people do not know how their assets are allocated, and approach each investment account separately. This piecemeal approach results in a mishmash of investments that does not reflect their goals, retirement plans or risk tolerance. It is important to construct an asset allocation for your entire portfolio instead of just looking at your IRA and then three months later your 401(k). The first step is to develop a coherent asset allocation plan for your entire portfolio and then decide how to implement the plan among your different accounts. A great place to start is the SEC (Securities and Exchange Commission) website (www.sec.gov/investor/pubs/assetallocation.htm). It explains the basics of asset allocation and has some good links to other resources.

Misstep #4, : Most investors don’t know anything about the investments they hold. For instance most investors are clueless when it comes to the credit quality of their corporate bonds, the fees charged on their mutual funds, the outlook on a particular stock, or other important details about their holdings. By not understanding their holdings, investors are frequently invested in very risky ventures and paying exorbitant fees.

If you do not have time everyday to devote to your portfolio, then do not invest in individual stocks or bonds. Be honest with yourself and admit that once you are invested you are never going to look at your investments again. In this situation, I would recommend you research some of the new lifecycle funds. These funds rebalance to a more conservative asset allocation as the targeted portfolio date (specified in the fund name) approaches. Unfortunately, most of these funds are too conservative (too heavily weighted toward cash and bonds) so don’t select a fund with the same target date as your retirement. Instead consider selecting a fund with a targeted date that is at least 10 years further off than your impending retirement. This will help you avoid asset allocations that are too conservative.

It is worth the time and effort to research your investments and not just opt out by using lifestyle funds. You lose control of your asset allocation and the fees are higher for lifestyle funds. I recommend using a combination of mutual funds and index funds to execute your asset allocation plan. This is a great way to diversify and manage risk. It won’t require you to daily manage your investments; bi-monthly to monthly monitoring should be enough once your portfolio is all invested.

It is important to research the cost of these investment vehicles before investing. Many investors are surprised to find out that they are paying a load or 12b-1 fee on their mutual fund investments. It is important to know the up front, annual or back end fees you will be paying before investing. Fees are usually buried in the back or middle of a Prospectus which is a legal document published by the fund company. You can also find information regarding fees and more on the internet at the Morningstar website (http://www.morningstar.com/#A1) and FundAlarm (http://www.fundalarm.com/) before investing.

In addition, it is very important to understand what the fund is purported to be invested in and what it is really holding. Janus Overseas is labeled by Morningstar as a Foreign Large Growth fund. Except Janus Overseas has a great deal more risk than any fund in this category because it is 27% invested in Foreign Emerging Markets (China, India, Thailand). This is a great deal riskier than being invested in Large Companies in Developed Foreign markets (Germany, United Kingdom, and Japan). In fact, most Large Cap Foreign funds typically have a 3% to 5% exposure to Emerging Markets. So if you had allocated part of your portfolio to Foreign Emerging Markets and then bought Janus Overseas, you would be over-weighted in Emerging Markets and have a riskier portfolio than you intended. Make sure you read the fund’s prospectus and research the funds using the two websites listed above.

Misstep #5: Not doing anything because you are too busy or are intimidated is the biggest misstep of all. It is your money and it may very well be your sole support in retirement. Take control or get help by hiring a professional financial planner. Get organized and design an investment plan that will help you meet your life goals and retirement plans. Good luck!

Libby Mihalka
The Financial Pragmatist

How to Navigate Refinancing Your Mortgage: Beware of Scams

Refinancing or financing your home can be stressful. Let’s face it, the biggest transaction you will probably ever make is purchasing and financing a home. I hear a good number of horror stories about refinancing. I’ve even had some of these tricks played on me. Fortunately I knew what to do. Here is what you should know about financing your home.

Do not accept a lender solicitation you got in the mail just because it looks good. Always do your due diligence and get competing quotes from reputable lenders. Usually a lender that woes you is not offering the most competitive terms. In addition, don't pursue the lender offering the lowest rate on sites such as bankrate especially if you've never heard of them before. These are the firms that are most apt to bait and switch the loan terms at the last moment or pad the closing costs. So watch out and do your home work.

Always watch out for the old bait and switch scam. Typically this is what happens. You complete the loan application and a few days later the loan officer confirms your application has been accepted. However, the loan is not at the initial rate and terms discussed, a fact the broker conveniently forgets to mention. Many people don’t realize that the terms have been changed until they are signing documents at closing. It is important to receive a copy of the terms and rates of your loan after your application has been accepted.

Make sure you have locked down your rate and make sure you understand what you need to do in order to keep it. I recommend call the lending officer regularly through the process to ensure that your loan is moving along and the rates and terms have not changed. Frequently, you can lose your loan terms if you do not submit all your forms and documentation required by a specific date. Keep copies of all the information you have given the lender and send the information by fax or certified mail. Call to make sure it has been received. If at closing the terms of the loan aren’t what you agreed to, don’t sign the documents.

Many borrowers don’t know the terms of their loans. Many of these terms, especially in combination, could spell financial disaster. So watch out for prepayment penalties, balloon payments, and an adjustable rate. These three items together should be a huge red flag. If these are the terms your lender is offering then you should go and talk to other reputable lenders and make sure you are making the right decision.

One of the biggest scams is padding the closing costs. Most borrowers don’t know that the lender is required to give you a good faith estimate of your closing costs (GFE) within three working days of accepting the loan application. The list is itemized and contains costs that are non-negotiable such as property taxes. One scam is to low ball the GFE and then pump them up on the closing statement. It is important to get another copy of the GFE a few days before closing. If the fees are more than 5% higher then the original estimate then demand that the fees be lowered or you’ll walk.

Many of the closing costs are negotiable. Below is a mortgage broker’s website that shows a sample GFE and explains some of the fees. (Website to Sample GFE). Focus on the fees in section 800 and try to eliminate unnecessary fees and lower the lender fees. Section 1100 outlines the title company fees. This is the title company that your mortgage broker wants you to use. You can use a different title company but expect a fight from your broker. They have established relationships with title companies that frequently provide services that support their business. Frequently you can save money by employing the title company yourself but it may not be worth the hassle.

Make sure you get as complete a GFE as possible and let the lender know that you will walk away if the final closing statement is significantly different from the GFE. Incomplete GFEs are the most frequent cause of an under estimated closing costs.

Finally, look out for mortgage brokers that try to cross sell you additional services such as home owners insurance. Always get multiple bids on these services. You can almost always find better coverage at a more reasonable price if you bid out these services separately.

The Financial Pragmatist
Libby Mihalka

It is Time to Rebalance

At the end of last week, the indices were all moving towards new highs. Despite slowing earnings growth the market just keeps heading up. While the long term trend is healthy, I think we are in for some turbulence. Usually when the market moves aggressively ahead, pushing toward new highs, after a while it takes very little news to derail the train. It seems inevitable as we head into the summer that the market will consolidate its gains by pulling back a little. The market will then take the summer off to digest the latest gains.

While the majority of the economic news remains positive there are negatives looming out there. For instance, there is slower U.S. employment growth, tightening credit, higher gas prices, slowing corporate earnings growth, and falling housing prices). Despite the negatives, the current situation does not warrant selling and walking away. Corporate earnings are still strong and P/E ratios are still reasonable (see chart). The current market conditions do warrant implementing a strategy of rebalancing and trimming. Increasing cash holdings over the next few weeks will enable an investor to take advantage of any pull backs. The catalyst(s) that could spark a correction is (are) unknown, but it could finally be the U.S. consumer cutting back or disappointing economic data.

It is likely that turbulence will be minor should it happen at all. The new global economy will continue to perform well pulling the U.S. market along with it. The story here is really the global economy and not just us anymore.
For right now, the market is still hot because of accelerating merger-and-acquisition activity. As of the end of last week the mid cap market has been blazing hot since the start of the year. In the last few weeks large cap domestic stocks have picked up the pace. It is very unclear whether large caps will finally outperform small and mid caps this year. It is inevitable that large caps will at some point outperform its small cap brethren in the future due to valuation metrics (see past blog postings for more information). International stocks are still chugging along with the MSCI EAFE up approximately 8% for the year. Bonds are showing some life with the Lehman Bros Aggregate index up almost 2% year-to-date.

Subprime Mortgage Debacle: What is the Impact?

Last year, the market overcame a wrenching period of soul-searching in May and June (2006). Back then, the Federal Reserve was at the end of a two-year campaign to raise interest rates, and the housing boom had started to fade. The concerns that dominated the minds of investors, however, did not linger, and the market had a solid second half.

Many market specialists assert that the current concerns will play out similarly. Weaknesses like those in the market for subprime mortgages issued to borrowers with weak credit will not threaten the broader financial markets, these experts say, because the world economy is growing, corporate profits are rising, and consumers with good credit are not defaulting at high rates.

Most of us (especially those living in areas with very high housing costs) are aware that lenders have pushed the envelope in recent years and granted loans to enable people to buy homes they would otherwise be unable to afford. In so doing, many of these buyers have stretched themselves financially and have little margin for error. Low starter rates and temporary interest-only terms are winding down or expiring. The rates on these loans are resetting at a much higher level because interest rates are rising. As a result, defaults among subprime mortgages have climbed sharply. How widespread is the problem? Well loans in this segment ac-counted for 24% of loan originations in 2006, and late payments in Alternative-A mortgages are esca-lating (the default rate in this sector is in the 13% to 14% range). The result: people are losing their homes and some subprime lenders have either experienced big financial losses or gone out of business.

Research analysts at PIMCO have suggested that this is a meaningful source of risk to the housing market, since these defaulting buyers have starter homes (less expensive homes) which are the first rung on the housing-market food chain. So on its face, rising delinquencies in a high-growth part of the market could be a serious concern.

Defaults and tighter lending standards will mean that growth in the subprime arena will stall, causing demand to sag even further in the housing market. PIMCO’s analysts believe that we’re in the middle of the housing downturn, and that this will ultimately cut roughly another 1% from GDP growth over the next few quarters (and that there is at least some risk that it could be worse). Clearly that’s not good, but it is also not as bad an outcome as many others seem to expect given the extensive media play that this problem has received.

The reason the spill over effects on the economy and corporate earnings aren’t more severe becomes clear when you break the U.S. consumer into quintiles. The bottom 20 percent of U.S. consumers generate only 8 percent of consumer spending. These are the very consumers that are caught in the sub-prime lending squeeze and could lose their homes. Conversely, the top 10% represents about 40% of consumer spending and these consumers are unaffected. The subprime debacle will effect will cause dislocations in the housing market but won’t deliver a crippling blow to the economy. It is just another road hazard that the economy and financial markets will need to navigate around.

HOW TO PROTECT YOURSELF FROM IDENTITY THEFT

Identity theft has become a very common crime. Law enforcement agencies are reporting that identity theft criminals have become increasingly organized and sophisticated. Simply stated, a thief or organized group of thieves acquire your personal information and use it to access your accounts or set up new ones in your name.

Much of this information is readily available in the public domain. Other information may be simply stolen from an unsecure mailbox, or obtained through fraudulent means such as “phishing” on the internet. Phishers attempt to fraudulently acquire sensitive information, such as usernames, passwords and credit cards details, by masquerading as a trustworthy entity in an electronic communication. eBay and PayPal are two of the most targeted companies, and online banks are also a common targets. Phishing is typically carried out using email or an instant message, and often directs users to give details at a website, although phone contact has been used as well. Once a person logs in to the phony site, the log-in information is captured and used by the thieves to access the real account on the real site.

Still other thefts involve tricking computer users to unwittingly download viruses or spyware by pretending to offer (ironically enough) free software that will improve their computer’s security. Once installed, these programs secretly transmit data (such as usernames and passwords) to the thieves, who are often overseas. These are just a few examples of how identify theft can take place, but approaches are always evolving so it pays to be skeptical and vigilant before providing any information to an unknown source, whether by phone, internet or in person.

The ease and speed with which identify theft can be accomplished, the losses that result, and the complexity and time required to stop the activity, are costly and nerve-wracking. Actual losses are seldom recoverable; furthermore, they are greatly exacerbated by the huge ongoing stress and hassle.

What should you do?
At a minimum, please consider the following that have been recommended by the U.S. Postal Inspection Service:

• Secure your mail by either obtaining and installing a secure mailbox (if you do not currently have a slot in your door or garage door) or re-routing your mail to a P.O. Box.
  
• Use a paper shredder to shred all personal documents before throwing them away, including the pre-approved junk mail you receive.
  
• Remove yourself from marketing lists by contacting the Mail Preference Section, Direct Marketing Association, P.O. Box 9008, Farmingdale, N.Y. 11735, (212) 768-7277, (www.dmaconsumers.org/offmailinglist.html).
  
• Regularly check your credit report at one of the three major credit agencies:
  1. TransUnion, 800-888-4213 (www.tuc.com); or
  2. Experian, 888-EXPERIAN (www.experian.com); or
  3. Equifax, 800-685-1111 (www.equifax.com).
  
• Use extreme caution about providing personal information when using the Internet. Do not download unknown programs or respond to unsolicited email notices. Links provided in email notices can be made to appear legitimate, such that the web address that is displayed in the link is not the one to which the link is connected. Scammers have been known to create elaborate duplicates of legitimate sites just for the purpose of collecting account information. If you aren’t sure about an emailed account notice, just ignore the link in the email and go directly to site on your own.

I am not suggesting that you become obsessive or paranoid, but a few relatively simple steps will go a long way towards protecting yourself. For further information, check out the U. S. Postal Inspection Service brochure and website.

Brochure (www.usps.com/cpim/ftp/pubs/pub280.pdf )
Website (www.usps.com/postalinspectors/)

The Financial Pragmatist

Libby Mihalka