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The Third Rail

Written by Brandon Grundy, CFP®.

Thanks to the wonder of the internet, I recently learned the meaning of the "third rail of politics" metaphor so often used to describe verboten government programs like Social Security.

According to Wikipedia, the third rail is a high-voltage rail used to power trains in some electric railway systems and, being electrified, would likely kill anyone who touched it. This seems an appropriate metaphor since no major politician wants to tackle the funding problems associated with Social Security, even though there are some relatively simple fixes. Ultimately, the third rail goes untouched for fear of the outcome.

Since I've been getting more questions lately about the structure and health of the Social Security system, it seems appropriate to touch on some higher-level factoids about the program.

Social Security provides retirement benefits to over 40 million beneficiaries each year, and to millions more spouses, dependents, and survivors of deceased workers.

The average monthly benefit is $1,350 and 30% of retirees receive less than $1,000.

Social Security benefits make up more than half of the household income for more than half of married retirees.

For a chunk of retirees, Social Security is over 90% of their income and without it, half of all retirees would live in poverty. (14% of seniors currently live in poverty anyway – recall the average benefit numbers listed above and imagine trying to live on that.)

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Staying Focused Amid the Noise

Written by Brandon Grundy, CFP®.

If having information leads to knowledge and, as Benjamin Franklin once said, "An investment in knowledge pays the best interest", where do you get your information? It can be very, very hard today to get the information you need without all the other "stuff" that often comes with it.

We are under a constant bombardment of information and most of it is, frankly, extraneous. But with the flow seeming to get stronger as time goes by, how do we limit the amount of information we take in? How do we ensure the information we consume is accurate and worthwhile?

These questions are applicable to all aspects of our lives but take on special significance where our money and financial futures are concerned. As we learn more about how complex computer algorithms often guide the "content" being delivered to us, it's disconcerting to realize that providers are much of the time simply showing us more of what they think we want to know.

Our internet browsing history often dictates what news and other content we're offered. If you search for "market correction", future content is likely to be tilted in that direction. If you search for "buy gold", internet ads and even non-traditional news content can be skewed toward an assumption that you're the "Chicken Little" consumer of bad news about the U.S. economy and the dollar. Without realizing it you can find yourself searching for information, for knowledge, from a skewed vantage point, either too positive or, more typically, too negative.

Add to this the unending pressure on media companies (and others) to generate a constant flow of content, and the lax quality control that comes from information and news being viewed as a commodity, and you get what we have now – the general inability to easily tell fact from fiction and what's worth your time versus what's nonsense meant simply to hold your attention.

Along these lines, here's an interesting essay from ThinkAdvisor, an online magazine for the investment advisor community. The author seems to have taken the words right out of my mouth when it comes to how hard it is staying focused amid all the noise...

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Seeing the Curve

Written by Brandon Grundy, CFP®.

Hitters in baseball love fastballs. Give them a steady diet of fastballs in the strike zone and good hitters are in heaven. But they can get into a rhythm and start looking for the next fastball. A common trick for crafty pitchers is to make hitters "think fastball" and then freeze the hitter with a nasty curveball that dives past, leaving them feeling surprised by the change of pace.

Unfortunately for many hitters, failing to see and hit the curveball is a common problem. To counter this, hitters try to anticipate when (and if) the curve might be thrown. They watch the pitcher's motion, read the ball as it leaves the pitcher's hand, and often simply try to guess based on what they've seen the pitcher do before. In other words, hitters have a variety of indicators to use when strategizing how best to get a hit.

Investors also have a variety of indicators to use. Many are complicated but there's a deceptively simple indicator that is getting some press recently: the yield curve. We've discussed the yield curve before, but I wanted to offer some additional explanation. Click below to continue reading. 

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E+R=O

Written by Brandon Grundy, CFP®.

Sometimes as I'm thinking about subjects to cover each week I'll come across an article that seems to take the words right out of my mouth.

If I bang a drum about anything investment and planning-related it's that we need to focus intently on controlling what can be controlled while trying to not get too worked up about the rest. There can and will be (and are) any number of issues that could get in the way of achieving our goals, so how we react when confronted with these challenges often dictates outcomes, whether we realize it at the time or not.

Along these lines, check out the following brief essay from a VP at Dimensional Funds applying the e+r=o formula to investing.

Investing is a long-term endeavor. Indeed, people will spend decades pursuing their financial goals. But being an investor can be complicated, challenging, frustrating, and sometimes frightening. This is exactly why it is important to have an investment philosophy you can stick with, one that can help you stay the course.

This simple idea highlights an important question: How can we, as investors, maintain discipline through bull markets, bear markets, political strife, economic instability, or whatever crisis du jour threatens progress towards our investment goals?

Over their lifetimes, investors face many decisions, prompted by events that are both within and outside their control. Without an enduring philosophy to inform their choices, they can potentially suffer unnecessary anxiety, leading to poor decisions and outcomes that are damaging to their long-term financial well-being.

When they don't get the results they want, many investors blame things outside their control. They might point the finger at the government, central banks, markets, or the economy. Unfortunately, the majority will not do the things that might be more beneficial— evaluating and reflecting on their own responses to events and taking responsibility for their decisions.

Some people suggest that among the characteristics that separate highly successful people from the rest of us is a focus on influencing outcomes by controlling one's reactions to events, rather than the events themselves. This relationship can be described in the following formula:

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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.