Donor Advised Funds – Doing good, wisely

July 10, 2018

By Josh Self

No matter how the 2017 Tax Cuts and Jobs Act (TCJA) may alter your tax planning, we’d like to believe one thing will remain the same: With or without a tax write-off, many Americans will still want to give generously to the charities of their choice. After all, financial incentives aren’t usually your main motivation for giving. We give to support the causes we cherish. We give because we’re grateful for the good fortune we’ve enjoyed. We give because generosity is something we value. Good giving feels great – for donor and recipient alike.

That said, a tax break can feel good too, and it may help you give more than you otherwise could. Enter the donor-advised fund (DAF) as a potential tool for continuing to give meaningfully and tax-efficiently under the new tax law.

What’s Changed About Charitable Giving?

To be clear, the TCJA has not eliminated the charitable deduction. You can still take it when you itemize your deductions. But the law has limited or eliminated several other itemized deductions, and it’s roughly doubled the standard deduction (now $12,000 for single and $24,000 for joint filers). With these changes, there will be far fewer times it will make sense to itemize your deductions instead of just taking the now-higher standard allowance, though we believe that with a generally-lower tax burden, many of our clients will have the capacity to give more, not less, due to these tax changes.

This introduces a new incentive to consider batching up your deductible expenses, so they can periodically “count” toward reducing your taxes due – at least in the years you’ve got enough itemized deductions to exceed your standard deduction.

For example, if you usually donate $8,000 annually to charity, you could instead donate $40,000 once every five years. Combined with other deductibles, you might then be able to take a nice tax write-off that year, which may generate (or be generated by) other tax-planning possibilities.

What Can a DAF Do for You?

DAFs are not new; they’ve been around since the 1930s. But they’ve been garnering more attention as a potentially appropriate tax-planning tool under the TCJA. Here’s how they work:

  1. Make a sizeable donation to a DAF. Donating to a DAF, which acts like a “charitable bank,” is one way to batch up your deductions for tax-wise giving. But remember: DAF contributions are irrevocable. You cannot change your mind and later reclaim the funds.
  2. Deduct the full amount in the year you fund the DAF. DAFs are established by nonprofit sponsoring organizations, so your entire contribution is available for the maximum allowable deduction in the year you make it. Plus, once you’ve funded a DAF, the sponsor typically invests the assets, and any returns they earn are tax-free. This can give your initial donation more giving-power over time.
  3. Participate in granting DAF assets to your charities of choice. Over time, and as the name “donor-advised fund” suggests, you get to advise the DAF’s sponsoring organization on when to grant assets, and where those grants will go.

Thus, donating through a DAF may be preferred if you want to make a relatively sizeable donation for tax-planning or other purposes; you’d like to retain a say over what happens next to those assets; and you’re not yet ready to allocate all the money to your favorite causes.

Another common reason people turn to a DAF is to donate appreciated assets, such as real estate or stocks in kind (without selling them first), when your intended recipients can only accept cash/liquid donations. The American Endowment Foundation offers this 2015 “Donor Advised Fund Summary for Donors,” with additional reasons a DAF may appeal – with or without its newest potential tax benefits.

Beyond DAFs

A DAF isn’t for everyone. Along the spectrum of charitable giving choices, they’re relatively easy and affordable to establish, while still offering some of the benefits of a planned giving vehicle. As such, they fall somewhere between simply writing a check, versus taking on the time, costs and complexities of a charitable remainder trust, charitable lead trust, or private foundation.  If it is appropriate for your situation, we are happy to discuss planned giving vehicles with you too.

How Do You Differentiate DAFs?

If you decide a DAF would be useful to your cause, and might be a helpful part of your financial plan, the next step is to select an organization to sponsor your contribution. Sponsors typically fall into three types:

  1. Public charities established by financial providers, like Fidelity, Schwab and Vanguard
  2. Independent national organizations, like the American Endowment Foundation and National Philanthropic Trust
  3. “Single issue” entities, like religious, educational or emergency aid organizations

Within and among these categories, DAFs are not entirely interchangeable. Whether you’re being guided by a professional advisor or you’re managing the selection process on your own, it’s worth doing some due diligence before you fund a DAF. Here are some key considerations:

Minimums – Different DAFs have different minimums for opening an account. For example, one sponsor may require $5,000 to get started, while another may have a higher threshold.

Fees – As with any investment account, expect administration fees. Just make sure they’re fair and transparent, so they don’t eat up all the benefits of having a DAF to begin with.

Acceptable Assets – Most DAFs will let you donate cash as well as stocks. Some may also accept other types of assets, such as real estate, private equity or insurance.

Grant-Giving Policies – Some grant-giving policies are more flexible than others. For example, single-entity organizations may require that a percentage of your grants go to their cause, or only to local or certain kinds of causes. Some may be more specific than others on the minimum size and/or maximum frequency of your grant requests. Some have simplified the grant-making process through online automation; others have not.

Investment Policies – DAF assets are typically invested in the market, so they can grow tax-free over time. But some investments are far more advisable than others for building long-term giving power! How much say will you have on investment selections? If you’re already working with a wealth advisor, it can make good sense to choose a DAF that lets your advisor manage these account assets in a prudent, fiduciary manner.  PLC Wealth employs an evidence-based investment strategy for all our managed assets.

Transfer and Liquidation Policies – What happens to your DAF account when you die? Some sponsors allow you to name successors if you’d like to continue the account in perpetuity. Some allow you to name charitable organizations as beneficiaries. Some have a formula for distributing assets to past grant recipients. Some will roll the assets into their own endowment. (Most will at least do this as a last resort if there are no successors or past grant recipients.) Also, what if you decide you’d like to transfer your DAF to a different sponsoring organization during your lifetime? Find out if the organization you have in mind permits it.

Deciding on Your Definitive DAF

Selecting an ideal DAF sponsor for your tax planning and charitable intent usually involves a process of elimination. To narrow the field, decide which DAF features matter the most to you, and which ones may be deal breakers.

If you’re working with a wealth advisor such as PLC Wealth Management, we hope you’ll lean on us to help you make a final selection, and meld it into your greater personal and financial goals. As Wharton Professor and “Give and Take” author Adam Grant has observed, “The most meaningful way to succeed is to help others succeed.” That’s one reason we’re here: to help you successfully incorporate the things that last – like generosity – into your lifestyle.

Reflections on 2018 and the stock markets renewed volatility…

If you were a member of the popular press, you’d probably be happy with 2018’s first quarter performance. At last – some volatility fueling news1 in early February, with plenty of enticing “largest,” “fastest,” and “worst” market superlatives to savor after a long, languid lull.

As usual, there are plenty of potential culprits to point to among current events: global trade wars heating up, the arrival of quantitative tightening (rising interest rates), troubles in tech-land over data privacy concerns, ongoing Brexit talks, and some interesting events over in the Koreas. At quarter-end, one hopeful journalist asked, “Is the Bear Market Here Yet?2 Another observed: “[T]he number of [Dow Jones Industrial Average] sessions with a 1% move so far in 2018 are more than double 2017’s tally, and it isn’t even April.”3

Has the coverage left you wondering about your investments? Most markets have been steaming ahead so well for so long, even a modest misstep may have you questioning whether you should “do something,” in case the ride gets rougher still.

If we’ve done our job of preparing clients and their portfolio for market jitters, clients may might be able to cite back to us why they’ve already done all they can do to manage the volatility, and why it’s ultimately expected to be good news for evidence-based investors anyway. Remember, if there were never any real market risk, you couldn’t expect extra returns for your risk tolerance.

That said, you may have forgotten – or never experienced – how awful the last round of extreme volatility felt during the Great Recession. Insights from behavioral finance tell us that our brain’s ingrained biases cause us to gloss over those painful times, and panic all over again when they recur, long before our rational resolve has time to kick in.

If you noticed the news, but you’re okay with where you’re at, that’s great. If the volatility is bothering you, talk to a CFP® professional or other qualified financial professional; it may help ease your angst. If you continue to struggle with whether you made the right decisions during quieter markets, plan a rational shift to better reflect your real risk tolerances and cash-flow requirements. Not only is your peace of mind at least as important as the dollars in your account, you could end up worse off if you’ve taken on more risk than you can bear in pursuit of higher expected returns.

As Wall Street Journal columnist Jason Zweig said during the February dip: “A happy few investors … may have long-term thinking built into them by nature. The rest of us have to cultivate it by nurture.”  We couldn’t agree more, and we consider it our duty and privilege to advise you accordingly, through every market hiccup.

The Vital Role of Strategic Rebalancing

If there is a universal investment ideal, it is this: Every investor wants to buy low and sell high. What if we told you there is a disciplined process for doing just that, and staying on track toward your personal goals while you’re at it? Guess what? There is. It’s called strategic rebalancing.

Strategic Rebalancing: How It Works

Imagine it’s the first day of your investment experience. As you create your new portfolio, it’s best if you do so according to a personalized plan that prescribes how much weight you want to give to each asset class. So much to stocks, so much to bonds … and so on. Assigning these weights is called asset allocation.

Then time passes. As the markets shift around, your investments stray from their original allocations. That means you’re no longer invested according to plan, even if you’ve done nothing at all; you’re now taking on higher or lower market risks and expected rewards than you originally intended. Unless your plans have changed, your portfolio needs some attention.

This is what rebalancing is for: to shift your assets back to their intended, long-term allocations.  In fact, this is part of the best practices suggested in my recent blog post for the New Year.

A Rebalancing Illustration

To illustrate, imagine you (or your advisor) has planned for your portfolio to be exposed to the stock and bond markets in a 50/50 mix. If stocks outperform bonds, you end up with too many stocks relative to bonds, until you’re no longer at your intended, balanced blend. To rebalance your portfolio, you can sell some of the now-overweight stocks, and use the proceeds to buy bonds that have become underrepresented, until you’re back at or near your desired mix. Another strategy is to use any new money you are adding to your portfolio anyway, to buy more of whatever is underweight at the time.

Either way, did you catch what just happened? Not only are you keeping your portfolio on track toward your goals, but you’re buying low (underweight holdings) and selling high (overweight holdings). Better yet, the trades are not a matter of random guesswork or emotional reactions. The feat is accomplished according to your carefully crafted, customized plan.

Portfolio Balancing: A Closer Look

We’ve now shared a simple rebalancing illustration. In reality, rebalancing is more complicated, because asset allocation is completed on several levels. First, we suggest balancing your stocks versus bonds, reflecting your need to take on market risk in exchange for expected returns. Then we typically divide these assets among stock and bond subcategories, again according to your unique financial goals. For example, you can assign percentages of your stocks to small- vs. large-company and value vs. growth firms, and further divide these among international, U.S., and/or emerging markets.

One reason for these relatively precise allocations is to maximize your exposure to the right amount of expected market premiums for your personal goals, while minimizing the market risks involved by diversifying those risks around the globe and across sources of returns that don’t always move in tandem with one another. We, and the fund managers we typically turn to for building our portfolios are guided by these tenets of evidence-based investing.

Striking a Rebalancing Balance

Rebalancing using evidence-based investment strategies is integral to helping you succeed as an investor. But like any power tool, it should be used with care and understanding.

It’s scary to do in real time. Everyone understands the logic of buying low and selling high. But when it’s time to rebalance, your emotions make it easier said than done. To illustrate, consider these real-life scenarios.

  • When markets are down: Bad times in the market can represent good times for rebalancing. But that means you must sell some of your assets that have been doing okay and buy the unpopular ones. The Great Recession of 2007–2009 is a good example. To rebalance then, you had to sell some of your safe-harbor holdings and buy stocks, even as popular opinion was screaming that stocks were dead. Of course, history has shown otherwise; those who did rebalance were best positioned to capture available returns during the subsequent recovery. But at the time, it represented a huge leap of faith in the academic evidence indicating that our capital markets would probably prevail.
  • When markets are up. An exuberant market can be another rebalancing opportunity – and another challenge – as you must sell some of your high flyers (selling high) and rebalance into the lonesome losers (buying low). At the time, this can feel counter-intuitive. But disciplined rebalancing offers a rational approach to securing some of your past gains, managing your future risk exposure, and remaining invested as planned, for capturing future expected gains over the long-run.

Costs must be considered. Besides combatting your emotions, there are practical concerns. If trading were free, you could rebalance your portfolio daily with precision. In reality, trading incurs fees and potential tax liabilities. To achieve a reasonable middle ground, it’s best to have guidelines for when and how to cost-effectively rebalance. If you’d like to know more, we’re happy to discuss the guidelines we employ for our own rebalancing strategies.

The Rebalancing Take-Home

Strategic rebalancing using evidence-based investment strategies makes a great deal of sense once you understand the basics. It offers objective guidelines and a clear process to help you remain on course toward your personal goals in rocky markets. It ensures you are buying low and selling high along the way. What’s not to like about that?

At the same time, rebalancing your globally diversified portfolio requires informed management, to ensure it’s being integrated consistently and cost effectively. An objective advisor also can help prevent your emotions from interfering with your reason as you implement a rebalancing plan. Helping clients periodically employ efficient portfolio rebalancing is another way that PLC Wealth Management seeks to add value to the investment experience.

Cryptocurrency…what’s all the buzz about?

Have you caught cryptocurrency fever, or are you at least wondering what it’s all about? Odds are, you hadn’t even heard the term until recently. Now, it seems as if everybody and their cousin are getting in on it.

 

Psychologists have assigned a term to the angst you might be feeling in the heat of the moment. It’s called “FoMO” or Fear of Missing Out. Education is the best first step toward facing FoMO and making informed financial choices that are right for you. So before you make any leaps, let’s take a closer look.

 

What is cryptocurrency?

Crytpocurrency is essentially a kind of money – or currency. Thanks to electronic security – or encryption – it exists in a presumably secure, sound and limited supply. Pair the “encryption” with the “currency,” and you’ve got a new kind of digital asset, or electronic exchange.

 

Well, sort of new. Cryptocurrency was introduced in 2009, supposedly by a fellow named Satoshi Nakamoto. His Wikipedia entry suggests he may not actually be who he says he is, but minor mysteries aside, he (or possibly “they”) is credited with designing and implementing

bitcoin as the first and most familiar cryptocurrency. Ethereum is currently its second-closest competitor, with plenty of others vying for space as well (more than 1,300 as of early December 2017), and plenty more likely to come.

 

Unlike a dollar bill or your pocket change, cryptocurrency exists strictly as computer code. You can’t touch it or feel it. You can’t flip it, heads or tails. But increasingly, holders are receiving, saving and spending their cryptocurrency in ways that emulate the things you can do with “regular” money.

 

How does cryptocurrency differ from “regular” money?

In comparing cryptocurrency to regulated fiat currency – or most countries’ legal tender – there are a few observations of note.

First, since neither fiat nor cryptocurrency are still directly connected to the value of an underlying commodity like gold or silver, both must have another way to maintain their spending power in the face of inflation.

 

For legal tender, most countries’ central banks keep their currency’s spending power relatively stable. For cryptocurrency, there is no central bank, or any other centralized repository or regulator. Its stability is essentially backed by the strength of its underlying ledger, or blockchain, where balances and transactions are verified and then publicly reported.

 

The notion of limited supply factors in as well. Obviously, if everyone had an endless supply of money, it would cease to have any value to anyone. That’s why central banks (such as the U.S. Federal Reserve, the Bank of Canada, and the Bank of England) are in charge of stabilizing the value of their nation’s legal tender, regularly seeking to limit supply without strangling demand.

 

While cryptocurrency fans offer explanations for how its supply and demand will be managed, it’s not yet known how effective the processes will be in sustaining this delicate balance, especially when exuberance- or panic-driven runs might outpace otherwise orderly procedures. (If you’re technically inclined and you’d like to take a deep dive into how the financial technology operates, here’s one source to start with.)

 

Why would anyone want to use cryptocurrency instead of legal tender?  

For anyone who may not be a big fan of government oversight, the processes are essentially driven “by and for the people” as direct peer-to-peer exchanges with no central authorities in charge. At least in theory, this is supposed to allow the currency to flow more freely, with less regulation, restriction, taxation, fee extraction, limitations and similar machinations. Moreover, cryptocurrency transactions are anonymous.

 

If the world were filled with only good, honest people, cryptocurrency and its related technologies could represent a better, more “boundary-less” system for more freely doing business with one another, with fewer of the hassles associated with international commerce.

Unfortunately, in real life, this sort of unchecked exchange can also be used for all sorts of mischief – like dodging taxes, laundering money or funding terrorism, to name a few.

 

In short, cryptocurrency, blockchain technology, and/or their next-generations could evolve into universal tools with far wider application. Indeed, such explorations already are under way. In December 2017, Vanguard announced collaborative efforts to harness blockchain technology for improved index data sharing.

 

That said, many equally promising prospects have ended up discarded in the dustbin of interesting ideas that might have been. Time will tell which of the many possibilities that might happen actually do.

 

Even if I don’t plan to use cryptocurrency, should I hold some as an investment? 

If you do jump in at this time, know you are more likely speculating than investing.

 

Bubble or not, consider these two points. First, there are a lot of risks inherent to the cryptocurrency craze. Second, cryptocurrency simply doesn’t fit into our principles of evidence-based investing … at least not yet.

 

Let’s take a look at the risks.

 

Regulatory Risks – First, there’s the very real possibility that governments may decide to pile mountains of regulatory road blocks in front of this currently free-wheeling freight train. Some countries have already banned cryptocurrency. Others may require extra reporting or onerous taxes. These and other regulations could severely impact the liquidity and value of your coinage.

 

Security Risks – There’s also the ever-present threat of being pickpocketed by cyberthieves. It’s already happened several times, with millions of dollars of value swiped into thin air. Granted, the same thing can happen to your legal tender, but there is typically far more government protection and insurance coverage in place for your regulated accounts.

 

Technological Risks – As we touched on above, a system that was working pretty well in its development days has been facing some serious scaling challenges. As demand races ahead of supply, the human, technical and electric capital required to keep everything humming along is under stress. One recent post estimated that if bitcoin technology alone continues to grow apace, by February 2020, it will suck away more electricity than the entire world uses today.

 

That’s a lot of potential buzzkill for your happily-ever-after bitcoin holdings, and one reason you might want to think twice before you pile your life’s savings into them.

 

Then again, every investment carries some risk. If there were no risk, there’d be no expected return. That’s why we also need to address what evidence-based investing looks like. It begins with how investors (versus speculators) evaluate the markets.

 

What’s a bitcoin worth? A dollar? $100? $100,000? The answer to that has been one of the most volatile bouncing balls the market has seen since tulip mania in the 1600s.

 

In his ETF.com column “Bitcoin & Its Risks,” financial author Larry Swedroe summarizes how market valuations occur. “With stocks,” he says, “we can look at valuation metrics, like earnings yield. With bonds, we can use the current yield-to-maturity. And with assets like reinsurance or lending … we have historical evidence to make the appropriate estimates.”

 

You can’t do any of these things with cryptocurrency. Swedroe explains: “There simply is no tangible relationship between any economic or financial parameters and bitcoin prices.” Instead, there are several ways buying cryptocurrency differs from investing:

 

  • Evidence-based investing calls for estimating an asset’s expected return, based on these kinds of informed fundamentals.
  • Evidence-based investing also calls for us to factor in how different asset classes interact with one another. This helps us fit each piece into a unified portfolio that we can manage according to individual goals and risk tolerances.
  • Evidence-based investing calls for a long-term, buy, hold and rebalance strategy.

 

Cryptocurrency simply doesn’t yet synch well with these parameters. It does have a price, but it can’t be effectively valued for planning purposes, especially amidst the extreme price swings we’re seeing of late.

 

What if I decide to buy some cryptocurrency anyway?

We get it. Even if it’s far more of a speculative than investment endeavor, you may still decide to give cryptocurrency a go, for fun or potential profit. If you do, here are some tips to consider:

 

  • Think of it as being on par with an entertaining trip to the casino. Nothing ventured, nothing gained – but don’t venture any more than you can readily afford to lose!
  • Use only “fun money,” outside the investments you’re managing to fund your ongoing lifestyle.
  • Educate yourself first, and try to pick a reputable platform from which to play. (CoinDesk offers a pretty good bitcoin primer.)
  • If you do strike it rich, regularly remove a good chunk of the gains off the table to invest in your managed portfolio. That way, if the bubble bursts, you won’t lose everything you’ve “won.” (Also set aside enough to pay any taxes that may be incurred.)

 

Last but not least, good luck. Whether you win or lose a little or a lot with cryptocurrency – or you choose to only watch it from afar for now – we remain available to assist with your total wealth, come what may.

 

 

10 Practices for the New Year

Happy New Year! Now that 2017 is a wrap, one of the best presents you can bestow on yourself and your loved ones is the gift of proper preparation for rest of the year. Want to get a jump-start on it? Here are 10 financial best practices to energize your wealth management efforts.

  1. Save today for a better retirement tomorrow. Are you maxing out pre-tax contributions to your company retirement plan? Taking full advantage of your and your spouse’s company retirement plans is an important, tax-advantaged way to save for retirement, especially if your employer matches some of your contributions with “extra” money. And, by the way, if you are 50 or older, you may be able to make additional “catch-up contributions” to your plan, to further accelerate your retirement-ready investing.
  2. Verify your valuables are still covered. Most households have insurance: home, auto, life … maybe disability and/or umbrella. But when is the last time you’ve checked to see if these policies remain right for you? Over time, it’s easy to end up with gaps or overlaps, like too much or not enough coverage, deductibles that warrant a fresh take, or beneficiaries who need to be added or removed. If you’ve not performed an insurance “audit” recently, there’s no time like the present to cross this one off your list.
  3. Get a grip on your debt load. Investment returns will only take you so far if excessive debt is weighing you down. Prioritize paying down high-interest credit cards and similar high-cost debt first, and at least meeting minimums on the rest. You may also want to revisit whether you still hold the best credit cards for your circumstances. Do the interest rates, incentives, protections and other perks still reflect your needs? Ditto on that for your home loan.
  4. Check up on your credit reports. Speaking of those credit cards, have you been periodically requesting your free annual credit report from each of the three primary credit reporting agencies? Be sure to use annualcreditreport.com for this purpose, as it’s the only federally authorized source for doing so. By staggering your requests – submitting to one agency every fourth months – you can keep an ongoing eye on your credit, which seems especially important in the wake of last summer’s Equifax breach.
  5. Get a bead on your budget. How much did you spend in 2017? How much do you intend to spend in the year ahead? After current spending, can you still afford to fund your future plans? Do you have enough set aside in a rainy day fund to cover the inevitable emergencies? These days, there are apps available to help you answer these important questions. Mint.com is one such popular app.
  6. Get ready for tax time … with a twist. While income tax reform looms large in the U.S., the changes won’t apply to 2017 taxes (due by April 17, 2018). There now may be tax planning opportunities or challenges to consider as the new laws take effect in 2018. You may want to fire up those tax-planning engines on the early side this time around.
  7. Give your investments a good inspection. Where do you stand with your personal wealth? Have you got an investment strategy to see you through? Does your portfolio reflect your personal goals and risk tolerances? If you experienced strong growth in 2017, is it time to lock in some of those gains by rebalancing your portfolio to its original mix? While investment management is a marathon of patient perspective rather than a short-sighted sprint of mad dashes, a new year makes this as good a time as any to review the terrain.
  8. Ensure your estate plans are current. Do you have wills and/or trusts in place for you and your loved ones? If so, when is the last time you took a look at them? Your family may have experienced births, deaths, marriagies or divorces. Dependants may have matured. You may have acquired or sold business interests, and added new assets or let go of old ones. Your original intentions may have changed, or government regulations may have changed them for you. For all these reasons and more, it’s worth revisiting your estate plans annually.
  9. Have a look at your healthcare directives. As healthcare becomes increasingly complex, advance directives (living wills) play an increasingly vital role in ensuring your healthcare wishes are met should you be unable to express them when the need arises. Don’t leave your loved ones unaware of and/or unable to act on your critical-care or end-of-life preferences. If you don’t already have a strong living will in place, Aging with Dignity’s Five Wishes is one helpful place to learn more.
  10. Give your newly adult children the gift of continued care. Have any of your children turned 18 recently? You may send them off to college or a career, assuming you can still be there for them should an emergency arise. Be forewarned! If you don’t have the legal paperwork in place, healthcare providers and others may be unable to respond to your requests or even discuss your adult child’s personal information with you. To remain involved in their healthcare interests, you’ll want to have a healthcare power of attorney, durable power of attorney and HIPAA authorization in place. It may also be prudent to establish education record release authorizations while you’re at it.

Next Steps in the New Year

We get it. Life never stops. The holiday season can be a busy time that often spills right into the new year. Don’t despair if you can’t get to all ten of these tidbits at once. Take on one each month, and you’ll still have a couple of months to spare before we’re ringing in 2019.

Better yet, don’t go it alone. Let us know if we can help you turn your financial planning jump-start into a mighty wealth management leap. It begins with an exploratory conversation.

Reflections on a Happy Thanksgiving

What makes you happy?  As we wish you and yours a Happy Thanksgiving, we’d like to take a moment to reflect on this timeless question.

You probably already realize that piles of possessions by themselves aren’t enough. But it may be less clear what does generate enduring happiness and how we, as your trusted advisor, might be one of your core alliances for discovering it.

First, let’s define what we’re talking about. We are fond of this description by “The Happiness Advantage” author, popular TED Talk presenter, and Harvard researcher Shawn Achor:

Happiness … isn’t just about feeling good,
it’s about the joy we feel while striving after our potential.”

Such a simple statement, but it’s packed with profound insights.  To take this even further, I believe that we get closer to our potential when we focus more on others rather than our own well being.  That is, being generous towards others plays a big part in achieving sustained contentment and joy.  It is quite the paradox (that we get the most when we give the most), but it has been believed through the ages and proven more recently in the research.

Happiness isn’t about indulging in fleeting pleasures.

In fact, it’s closer to the opposite of that. If you can only be happy once you’ve “scored,” you are limiting your joy to isolated incidents instead of weaving it into the fabric of your life.

You can still be happy, even when life isn’t all puppies and rainbows.

Distinguishing enduring happiness from occasional pleasures frees us to enjoy even our most challenging experiences, and to savor them as among our fondest memories. It’s why we may willingly burn the midnight oil on a project of deep interest. Pay a personal trainer to push us harder than we’ve ever gone before. Volunteer our hearts and minds to others in need. Give birth.

Everyone has different sources of happiness, but the joy it can spread is universal.

In a world that sometimes seems increasingly polarized, a greater appreciation for happiness might just bring us closer together. As Achor comments: “Joy makes us want to invest more deeply in the people around us. … It makes us want to learn more about our communities. It makes us want to be able to find ways of being able to make this a better external world for all of us.”

By coming together to focus on what sustains us – an optimistic outlook, value-driven action, meaningful relationships – therein we can find greater happiness. That’s what the evidence suggests, anyway.

Again, we wish you a most Happy Thanksgiving!

What do the tea leaves say today?

If you’ve taken our past advice about ignoring the onslaught of breaking market news, you probably didn’t read Russell Investments’ recent “2017 Global Market Outlook Q4 Update.”

I’m not prone to pore over these relatively unremarkable analyses ourselves, but I do read a lot of ‘industry speak’ as part of our due diligence. More times than not, it for purely entertainment purposes to see what the tea leaves say on that particular day.  This is how I came across this intriguing statement in Russell Investments’ wrap-up:

“Our main message for the close of 2017 isn’t much different from our opening one: we maintain our ‘buy the dips and sell the rallies’ mantra.”

Great idea, but a little weak on practical application. It’s akin to suggesting that lottery players can score big … as long as they consistently pick the winning numbers!

Immediately following Russell Investments’ mantra, you’ll find this disclosure:

“These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page.”

In all seriousness, I feel these sorts of reports speak inadvertent volumes about the evidence-based mantra to which we adhere.  If you are not familiar with this term evidence-based investing, be on the lookout as I will be writing more about this soon. It is a main tenant to the way we view and implement investment strategies.  By depending on practical evidence instead of fanciful forecasts, our views are rarely subject to change – especially not in hurried reaction to current market conditions.

Instead, we continue to believe the best way to manage your personal wealth is to:

  • Stay laser focused on your bigger picture…are you on track to achieve your goals. Buy, sell and rebalance your portfolio according to your own carefully crafted plans.
  • Focus on an efficient, evidence-based approach to capturing the market’s durable returns while managing its related risks.
  • Ignore the market’s daily distractions, especially its fleeting dips and rallies; they’re far more likely to block the view toward your higher goals than to yield big wins through the chase.

This is our mantra, and so it shall remain – regardless of the date at the top of the page.

Equifax Security Breach, Part II

I initially wrote about my take on the Equifax Security Breach about a month ago.  In that time since, the news continues to come out about just how pervasive this hack was (and maybe continues to be).  We were already on high alert for instances of identity theft. But the source, scope, and what seems like a justified feeling of betrayal associated with this particular breach have ushered in a new era of cybersecurity. There was before the Equifax security breach; now there’s after.

What does “after” look like, and how can we help you navigate it?  Unfortunately, there is no one-size-fits-all regimen, but here are some of the most frequently cited actions we’ve seen, along with our commentary on them.  Some of these were mentioned in my first post (repetition never hurts) but I have added some new thoughts as well.

What should you do right now?

  1. Check your credit reports using annualcreditreport.com. Keeping an eye on your credit reports has long been a best practice, and should continue to be, today more than ever. Be sure to only use annualcreditreport.com. As the website says, it is the only provider authorized by Federal law to provide you with the free annual reports that already are rightfully yours. Also, so you can obtain a free credit report more than annually, consider staggering the three primary agencies’ reports, selecting one to review every four months.
  2. File your tax returns as early as you’re able. This might sound strange considering that we are only a few days away from the extension deadline; however, January 1st, 2018 will be here before we know it. Plan to have your tax information organized and ready to go to your CPA.  Filing early minimizes the opportunity for an identity thief to file a bogus return on your behalf.
    This may not be practical for some of you, but the bottom line…if you can file earlier than later, do so.
  3. Consider placing a fraud alert or a freeze on your credit. Deciding which (if either) of these actions makes sense for you depends on your personal circumstances. For example, if you’re frequently applying for credit, placing a freeze may be impractical. On the other hand, if you have been a victim of identity theft, an alert might not suffice. In this instance, it’s worth reading through the advantages and disadvantages before determining your next steps. We’re here for you as well, to serve as an additional sounding board.
  4. Consider enrolling in a credit monitoring service. Equifax has offered to provide a year of free credit monitoring and identity theft protection via TrustedID Premier. We’ve seen mixed reviews on whether it makes sense to accept Equifax’s offer. First, there’s the whole trust issue raised by the recent breach. Plus, identity thieves have nearly endless patience, so one year of monitoring is only the beginning. That said, other independent services can be costly (especially if you’ve got an entire family to cover), and they may not ultimately offer much that you cannot do on your own if you so choose. It comes down to a cost/benefit analysis unique to you.
  5. Regularly change the passwords and PINs on your financial accounts. Like regularly monitoring your credit reports, periodically changing your financial account login information has been and remains a best practice. Quarterly or at least twice a year makes good sense to us.

Information fatigue is the enemy of action

We’ve seen other tips and pointers besides these, some of which may be advisable as well. To avoid informational overload, here are three guiding lights:

  • Pace yourself. As with any seemingly insurmountable challenge, it may be best to take things one step at a time, lest you lock up and end up doing nothing at all.
  • Patiently prevail. Approach your security as an ongoing process rather than a quick fix. After determining which actions make sense for you, set up a routine and a schedule for implementing them. Write down your plans, and then follow them.
  • Partner with us. We won’t go into sensitive specifics here but, as financial advisors, we have long been taking strong measures at our end to protect against hackers and identity thieves. That said, no system is impregnable. The more aggressively we join forces to thwart cybercriminals, the more likely we will ultimately prevail.

So, how can we help you moving forward? If you’d like to consult with us as you think through some of the points we’ve touched on above, we welcome the conversation. We also ask you to be responsive when we reach out to you with security-related questions or suggestions. For example, earlier this year, we produced a quick-reference and more detailed overview, “Avoiding Financial Scams and Identity Theft Slams,” filled with perennial information and best practices. We’d be delighted to share those materials with you so just ask.

As this wise educator observed in reflecting on the Equifax breach, “Security isn’t a product. It’s a process.” Just as sensible investing involves taking appropriate near-term steps in the context of an ongoing, personalized plan, so too do we find it increasingly imperative to respond to this and future cyberattacks with upfront planning, well-reasoned action and continued best practices. Let us know how else we can assist with that!

 

What does the Equifax data breach mean for you?

Financial monitoring…this is part of financial planning that gets often overlooked.  Like a crack in the foundation of a house, it is hard to see unless you are looking for it, but it can have catastrophic consequences if left unattended.  As you may have heard, Equifax (which is one of the 3 main credit reporting agencies) admitted to a historic data breach which occurred earlier this year.  If you haven’t heard the details, you need to read about it here.  This explanation and suggested action steps from the Federal Trade Commission is excellent.  Supposedly 143 million people had their personal information potentially comprised.  I say ‘potentially’ because Equifax has not disclosed the exact details of the breach, so we really don’t know the extent of what occurred.  I find it pretty disappointing that the breach occurred earlier this year, they knew about it several weeks, if not months ago, and yet we are just now hearing about it.  That said, I wanted to take the opportunity to highlight a few different points.

What should you do?

First, do not get lax about these data breaches.  Just because they seem to happen all the time, and the numbers of people affected seem so large that it is hard to fathom as real, do not take a laissez faire approach, thinking it will never happen to you.  This is exactly the attitude these criminals look to exploit.  And make no mistake about it…the days of the disgruntled teenager hacking away in his parents basement is long past.  Most of these hacks and the subsequent identity thefts are undertaken by world wide organized crime rings.

Next, check your credit report.  Note, this is different than requesting your credit score.  By government mandate, everyone is allowed one free credit report every year.  You can go through the process here.  It only takes a few minutes.  If you are married, do this separately for both spouses.  This will give you a detailed listing of all credit accounts that are open, or were previously opened, in your name.  I suggest that you download and review this every year.  I have done this fairly consistently, and have found error accounts, or accounts that I thought were closed out but were actually still open.  Closing a credit account (like an old Gap card that you never use or the credit card you opened that one time to get a free plane ticket) may drop your credit score temporarily, but I think it is worth the short term hit so as not to have accounts open that you never use or check.  These dormant credit accounts can also be great opportunities for criminals to hack and use.

Finally, you can be your own best protection against identity theft by just being aware and diligent.  I suggest you read through the FTC’s post (link above) and review your annual credit report.  But don’t stop there…these institutional hacks open the door for more and more identity theft, the fastest growing crime in the world.  At PLC Wealth, we have several procedures in place to do our part to make sure our clients money is protected and secure.  Additionally, TD Ameritrade has even more built-in procedures to ensure money does not move to anyone other than the account owner.  But we can not protect your bank accounts or credit accounts, which seem to be where much of this white collar crime occurs.  It starts with personal information being stolen, then moves to the criminals (usually through computer programs) trying to probe to see where they can get in.  If you think your bank account has been compromised, let the bank know immediately.  They will change your account number and give you new bank cards.   If you see a strange transaction on a credit card, let the credit card company know right away.  It’s likely that you won’t be held responsible for that charge, and they will send you new cards immediately, sometimes overnight.

The main point of all of this is that you need to be diligent.  With 143 million people exposed as part of this latest breach, it is likely that some of your personal information was part of it.  I checked Equifax’s alert site here and found that both my and my wife’s information was part of the breach.  That being said, I will most likely not take part in the free credit monitoring service that Equifax is offering, primarily because the service will automatically start billing at their normal monitoring rate after the first year, unless you proactively cancel.  That just seems like a slick way to get more people paying for their services rather than being a true pro bono offering.  I will, however, be watching transactions diligently and checking my own credit report for anything that looks off…and I think you should too.