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That Nice Man on the Phone

Written by Brandon Grundy, CFP®.

Risk is everywhere. It's all around us every day. I'm not simply referring to market risk, but also risks to our identity and finances due to the convenience tradeoffs associated with just about everything being web-enabled these days.

But with all the cyber-related risks out there, it's interesting and scary to remind ourselves that most financial fraud is still person-to-person, not simply the result of crooks hacking into a large company's database. It's the person on the phone, on your doorstep, or even in a fancy office somewhere.

During my career I've fielded calls from fraudsters impersonating clients, seen forged wire requests come through, and have even dealt with extended family members trying to gain access to client accounts for a variety of nefarious reasons. Low-tech methods still seem to be the tool of choice.

Financial fraud is often directed at seniors who, according to the FBI, typically have assets, good to great credit, and were raised to be polite. These criteria were likely present during a recent string of fraudulent telephone calls made to investors by crooks purporting to be from the Securities and Exchange Commission (SEC).

Apparently, somehow swindlers got hold of some basic information about people's investment accounts, maybe such as which firms they do business with, and then called the investors on the phone pretending to help them complete a transaction. A few weeks ago, the SEC released an alert about this activity and, interestingly, attached audio files of one of the calls. Continue reading below for more information. 

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Useful Analogies

Written by Brandon Grundy, CFP®.

One of the things I like about my profession is that there are so many analogies to help explain it. Of the many I've heard over the years, one of the recurring themes is sailing. You're on your boat sailing toward your future, the captain of your own destiny. Hopefully you have a plan, a compass, a good navigator, and so on. I just read a pretty good one and you'll find it below.

Analogies should come from what you know, and I've never been more than an armchair sailor, so most of mine come from ultrarunning. Some years ago, I caught the running bug and eventually found ultramarathons. Ultras are, technically, any distance beyond a marathon but typically start at 50-kilometers (31 miles). There can be ultras on roads or tracks but they're usually on trails. There are 50-milers, 100k's, 100-milers, and even longer races.

Strange as it may sound, preparing for and running an ultramarathon is just like planning for and living in retirement.

Running an ultra is all about planning and preparation, putting in the work during training, setting realistic expectations, executing on your plan, and then being able to call audibles as things change and the fates seem to conspire against you.

Preparedness takes on new meaning when you are miles from aid on a hot day and realize you're out of water. It's the simple things that will get you every time. Learning how to deal with the unexpected is critical and winging it isn't an option, nor is inflexibility.

After all the miles run in training you have little idea what the conditions will be like come race day. Yes, there's the weather report but you can still get pummeled by unexpected rain and wind. Or heat. Or cold. Or all of these on the same day. Maybe you're running along fine and then, wham, you're on the ground, the victim of a thumb-sized root you should have seen up ahead. Maybe you realize too late you started off too fast and now have many miles to go with an energy deficit. Or, perhaps you realize that you're simply ill-prepared for the task at hand. There are no shortcuts and ultras can be cruel judges.

Fundamentally, the lessons of strategy, diligence, and patience in prepping for and running an ultra are directly applicable to financial planning.

There can and will be lots of uncertainty in your plans for retirement. Your personal and professional life will change, and so will your goals and objectives. Markets will be volatile and scary. A host of issues, many of which you cannot control, will try to lead you astray. In an ultra, the saying is to "run your own race", meaning you need to plan based on your personal goals and not get caught up in the goals of others. The same goes for planning for and living in retirement.

So, having a good and flexible plan is critically important. By being flexible as things change and working diligently on controlling what can be controlled, you'll have the best shot at success, whether your goal is finishing a race or a enjoying a happy retirement.

For a nautical version of this concept, check out the following essay from Jim Parker, VP at Dimensional Funds...

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Deficits and Tariffs

Written by Brandon Grundy, CFP®.

As I'm sure we're all aware, the stock market has been in full blown "react" mode during the past several weeks. While there have been a variety of issues fueling this volatility, the first was interest rates and the second is what some view as a brewing trade war with China. With all the rhetoric bouncing around it's hard not to feel nervous. Anytime the word "war" is used it's bound to ramp up the tension level anyway. So, what's one to do in the face of the current market anxiety? Simply put – stay calm.

Part of staying calm is educating yourself about the issues at hand, all of which take longer to explain than a quick sound bite on the news (and even this blog post). Global trade is incredibly complicated, and I don't claim to be an expert in this area. Part of what makes the topic complicated is that the big picture themes make sense, but the details are often counterintuitive.

Take the concept of a having a trade deficit with another country. We buy things from another country and they buy from us (bilateral trade). If we buy more from them than they do from us, that's a deficit. The opposite yields a surplus. This makes sense but of course there's more to it than that and in this kind of thing the details are important.

The concept of "deficit" gets bandied about in the media and is often equated with "deficiency", implying that having a trade deficit with another country somehow makes the US weak or, well, deficient. While such deficiencies might make for an interesting rant on cable news, it's not the whole story.

If you dig deeper, you'll quickly see how interconnected and complicated the global economy is and how it defies soundbites. For example, we might ship product components (from the US or elsewhere) to another country where they are assembled and shipped back. Some or all the components might come from other countries as well, each going into the product that is "Made in China" but sold on our shelves. But how much is Chinese versus US versus Vietnamese versus German...? These numbers get muddied when wrapped up in the headline trade numbers.

Take this explainer from www.econofact.org about the iPhone as an example:

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Quarterly Update

Written by Brandon Grundy, CFP®.

The first quarter (Q1) of 2018 could best be summed up as a return to volatile markets. Already this year we have experienced more volatility than in all of 2017. There were six +/-2% moves for the S&P 500 during the quarter compared with zero last year. Following a year of near historic low volatility this heightened level is likely to linger for a while.

Here's a summary of how major market indexes ended the quarter:

  • S&P 500: down 0.8%
  • Down Jones: down 2%
  • Russell 2000 (small company stocks): about flat
  • MSCI EAFE (foreign stocks): down 1.4%
  • MSCI EM (emerging markets): up 1.5%
  • U.S. Aggregate Bonds: down 1.5%
  • Municipal Bonds: down 1.6%

Stocks powered into 2018 with a continued uptrend and the S&P 500 hitting another record high in late-January. Nearly all asset classes were up early in the new year, and the rising tide seemed to be lifting all boats. But as we have discussed previously, markets can't stay quiet forever. Volatility then came roaring back as we entered February.

While there were multiple catalysts leading to the eventual market correction, the primary culprit was an ironic one: economic growth. During much of 2017 the Federal Reserve had signaled perhaps three interest rate increases during 2018 as it planned to respond to a growing economy. The stock market cheered what it felt was moderate interest rate policy, while the bond market was pricing in, perhaps pessimistically, just two rate increases.

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Mixed Messages

Written by Brandon Grundy, CFP®.

The past couple of weeks have been a time of mixed signals in the markets and news media. One day (or even one moment) the news is positive and the next it's negative. It's confusing and can leave one wondering just who's right, the bulls or the bears.

Stocks had staged a bit of a comeback earlier this month after the correction in February, only to go crazy again in the past couple of weeks. Seemingly all of a sudden stocks were back in correction-mode and many in the media seemed to turn bearish. This craziness and mixed messaging came to a head last week, with positive economic news being drowned out by a variety of negative headlines.

On the positive side, we had the first press conference from our new Fed chief, Jerome Powell. The Federal Open Market Committee (FOMC), which he heads, had just raised short-term interest rates again by 0.25%. This marked the sixth time the FOMC had raised rates since 2008 with all the increases happening since December 2015.

Why is this positive? Well, because Jerome Powell and the FOMC raise rates in response to a healthy and growing economy. This was also good news because of how the information was delivered. Maybe surprisingly, markets were watching not only for what Powell said but also how he said it. Did he look comfortable and poised and did he say anything stupid? Sounds crazy, right? But this is often the stuff that moves markets in the short-term.

Chair Powell did a fine job and his report was pretty good. Housing is doing well, he said, and the nation's unemployment rate is low and perhaps going lower. The tax reform law passed in December should be stimulative to the economy, although he's not sure when and how that will start showing up. GDP growth, one measure of the health of our economy, is being revised upward. Because of this he indicated the Fed would likely continue slowly bumping up rates as the economy continued to improve.