I was honored to help US News and World Report recently in their article “How Grandparents Can Help Save for College” the author of the article and I discussed how difficult it can be for families to discuss money and saving for college and different ways to broach the subject. We also discussed how the money that a Grandparent has saved for a grandchild can sometimes hurt their financial aid prospects depending on how it is managed. We also discussed different investment vehicles and the pros and cons of each.
I was honored to help US News and World Report recently in their article “6 Mistakes Grandparents Make When Helping Pay for College” we had a nice long conversation which was used for a couple of articles. Discussed in this article are making sure that you do not miss tax breaks, that if you choose to use savings bonds that you title them correctly, and that you are careful about the timing of your gift to the grandchild so that you do not harm their financial aid chances.
This is important.
Equifax disclosed yesterday that it had a data breach that in all likelihood involved you.
Info was stolen for about 143 million consumers including names, Social Security numbers, addresses, birth dates, and driver’s license numbers. Serious stuff and hard to imagine we are not all impacted.
If you have a credit card or loan or have had in the last seven(+) years, then the credit bureaus have been keeping a credit report on you. Be safe and assume your information has been hacked.
Take some steps to help protect yourself and restrict how your personal information is used.
What to do?
- Freeze your credit
Be aware that some agencies may charge a small fee to freeze and unfreeze your credit. You can freeze your credit by using the following phone numbers and links:
- Equifax: 866-349-5191
Freeze your credit
- Experian: 888-397-3742
Freeze your credit
- Transunion: 888-909-8872
Freeze your credit
2. Call your brokerage firm to put verbal passwords on the account, check with your bank/credit union to see if they also offer this.
3. Set up two-factor authentication on your financial accounts if it is available and not automatically required. Yes, it is a bit of a pain, but it is designed to help protect you. When you log into a website, they send a code which you must use to get into the website. This prevents someone from impersonating you even if they do figure out your password.
4. Open your mail/emails from your financial institutions! When your contact information is changed; emails, address, phone numbers, you are notified. Changing contact info is often step one of fraud (often, but not always.)
5. Be especially watchful of phishing, links to duplicate sites, and other types of email scams. These are attempts to collect additional sensitive data/information to perpetrate fraud.
6. If you logged into Equifax in the past, change that password and if you used the same password on any other website, change the password for that website as well.
If you think that this would be helpful to family or friends please share the info!
While this is serious, and you need to take steps to protect yourself, please do not panic or worry. Take control of the situation and take action. Then go spend time with your loved ones, do some gardening, sip some wine, go hiking, have some chocolates (see my Clark HFP &IM Facebook post from last Friday!) do whatever it is that you enjoy!
I will leave you with this quote from the marvelous George Burns…
“If you ask what is the single most important key to longevity; I would have to say it is avoiding worry, stress, and tension. And if you didn’t ask me, I’d still have to say it.”
Have a wonderful weekend! I will.
I was recently out of the St. Louis area for a bit while I attended The Garrett Planning Network 17th Annual Retreat which was held in Denver, Colorado. I am a member of the Garrett Planning Network which is an international group of financial planners / investment advisors. Each member of the network owns their own firm. I have written about the Garrett Planning Network before. This was the ninth year I have gone.
I attended the conference and earned continuing education credits by going to various educational programs, which I need so that I can keep my designations and licenses such as:
- CERTIFIED FINANCIAL PLANNER™
- NAPFA Registered Financial Advisor
- CHARTERED RETIREMENT PLANNING COUNSELOR℠
For example, I have to have 60 hours of continuing education every two years as a NAPFA Registered Financial Advisor.
During the four day conference, I attended various educational programs such as:
- What Goes into a Plan for the Later Years of Life?
- Retirement Income Showdown: Risk Premium vs. Risk Pooling
- How You Can Help Your Clients Cut Their College Costs
- Why All the Buzz about Reverse Mortgages
- The State of Fiduciary Rules for Fee-Only Investment Advisors
- Big Insurance Theories
- How to Use Reverse Mortgages to Secure Yur Retirement
- Long Term Care Planning: Leveraging Your Client’s Risks
- And others
You can see some of the live tweeting that I did at the conference under my Twitter handle @HourlyPlanner. You do not need a Twitter account.
The Garrett Planning Network has several educational conference calls each month, and the members interact on an internal forum to help each other with more complex planning cases on a daily basis. One of the most beneficial outcomes of my annual trip to this retreat is getting together with this group, sharing ideas, and getting updates from these amazing colleagues in person. It is something I look forward to all year!
I found a recent study conducted by Dimensional Fund Advisors, a synopsis of which is below, very interesting and timely given the rising interest rate environment. For a background on bonds, I have also created a blog post today about How Bonds Work.
Should stock investors worry about changes in interest rates?
Research shows that, like stock prices, changes in interest rates and bond prices are largely unpredictable. It follows that an investment strategy based upon attempting to exploit these sorts of changes isn’t likely to be a fruitful endeavor. Despite the unpredictable nature of interest rate changes, investors may still be curious about what might happen to stocks if interest rates go up.
Unlike bond prices, which tend to go down when yields go up, stock prices might rise or fall with changes in interest rates. For stocks, it can go either way because a stock’s price depends on both future cash flows to investors and the discount rate they apply to those expected cash flows. When interest rates rise, the discount rate may increase, which in turn could cause the price of the stock to fall. However, it is also possible that when interest rates change, expectations about future cash flows expected from holding a stock also change. So, if theory doesn’t tell us what the overall effect should be, the next question is what does the data say?
Recent research performed by Dimensional Fund Advisors helps provide insight into this question. The research examines the correlation between monthly US stock returns and changes in interest rates. While there is a lot of noise in stock returns and no clear pattern, not much of that variation appears to be related to changes in the effective federal funds rate.
For example, in months when the federal funds rate rose, stock returns were as low as –15.56% and as high as 14.27%. In months when rates fell, returns ranged from –22.41% to 16.52%. Given that there are many other interest rates besides just the federal funds rate, Dai also examined longer-term interest rates and found similar results.
So to address our initial question: when rates go up, do stock prices go down? The answer is yes, but only about 40% of the time. In the remaining 60% of months, stock returns were positive. This split between positive and negative returns was about the same when examining all months, not just those in which rates went up. In other words, there is not a clear link between stock returns and interest rate changes.
There’s no evidence that investors can reliably predict changes in interest rates. Even with perfect knowledge of what will happen with future interest rate changes, this information provides little guidance about subsequent stock returns. Instead, staying invested and avoiding the temptation to make changes based on short-term predictions may increase the likelihood of consistently capturing what the stock market has to offer.
Glossary of Terms
Discount Rate: Also known as the “required rate of return,” this is the expected return investors demand for holding a stock.
Correlation: A statistical measure that indicates the extent to which two variables are related or move together. Correlation is positive when two variables tend to move in the same direction and negative when they tend to move in opposite directions.
Fama/French Total US Market Index: Provided by Fama/French from CRSP securities data. Includes all US operating companies trading on the NYSE, AMEX, or Nasdaq NMS. Excludes ADRs, investment companies, tracking stocks, non-US incorporated companies, closed-end funds, certificates, shares of beneficial interests, and Berkshire Hathaway Inc. (Permco 540).
. See, for example, Fama 1976, Fama 1984, Fama and Bliss 1987, Campbell and Shiller 1991, and Duffee 2002.
. Wei Dai, “Interest Rates and Equity Returns” (Dimensional Fund Advisors, April 2017).
. US stock market defined as Fama/French Total US Market Index.
. The federal funds rate is the interest rate at which depository institutions lend funds maintained at the Federal Reserve to another depository institution overnight.
|Source: Dimensional Fund Advisors LP.
Results shown during periods prior to each Index’s index inception date do not represent actual returns of the respective index. Other periods selected may have different results, including losses. Backtested index performance is hypothetical and is provided for informational purposes only to indicate historical performance had the index been calculated over the relevant time periods. Backtested performance results assume the reinvestment of dividends and capital gains.
Eugene Fama and Ken French are members of the Board of Directors for and provide consulting services to Dimensional Fund Advisors LP.
There is no guarantee investment strategies will be successful. Investing involves risks including possible loss of principal.
All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.