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August 2024

Donna Cournoyer
In Reading Recommendations

Reading Room: How to Know a Person

David Brooks is a Canadian-born American conservative political and cultural commentator who writes for the New York Times and The Atlantic.

He’s also written for the Washington Post, The Wall Street Journal, and The Weekly Standard. He joined Weymouth, Massachusetts native Mark Shields from 2001 to 2020 on PBS News Hour and continues to comment on PBS.

In his recent book How to Know a Person, he offers observations and personal experiences that help us become more skilled at the art of seeing others and making them feel seen, heard, and understood.

Chapters include: The Right Questions, The Art of Empathy, and What Is Wisdom?

In Brook’s words: “I’m hoping this book will help you adopt a different posture toward other people, a different way of being present with people, a different way of having bigger conversations.”

-RK

Donna Cournoyer
In College Planning

College Planning in the Summer: A Focus for High School Seniors

Our colleague and college planning specialist Donna Cournoyer contributed the following article.

Summer before senior year for a high school student is often filled with good times, maybe a summer job, and also great anticipation of the final stretch of the college planning process with fall college applications looming in the coming weeks.

For families of college bound students entering their final year in high school, the end of summer is a great time to ensure most of the preparation is done, and that you’re organized and ready for application season this Fall.

Focus Items for Being Well-Prepared

  • Narrow your school list and decide on a final list for applications (for all criteria including costs)
  • Have accurate estimates for out-of-pocket costs for each school; either by working with a college planner, and/or using the Net Price Calculators on each school’s website for financial aid and merit scholarship estimates
  • Make a list of deadlines and choose your application timeline (early action, regular decision, etc.) for each school and list any materials needed for your applications
  • Finalize essay or essays for your applications
  • Have your list of extracurriculars, achievements, and awards up to date and ready
  • Have any personal statements and teacher recommendations ready
  • Start the Common App soon after it opens on August 1 to be sure you stay on schedule

For high school students heading into senior year, here are a few things which are important to keep in mind:

High School Courses and Activities

Keep up focus on grades and activities. Admissions will require final transcripts and may question if your student’s grades suddenly dip after the application has been submitted.

Do not make significant changes to your curriculum, or switch from AP and honors to all regular courses. Again, keeping up with your plan is important so that you will maintain your status as a highly focused student.

Admissions Process

If the schools on your college list heavily consider demonstrated interest in applicants, be sure to reply to requests for communications and attend events in the fall during the admissions process. Interact with your admissions counselors when they reach out.

Some schools weigh a student’s engagement and interest when reviewing applications. However, if you contact the school, be sure to have specific questions and make it a productive call for both you and the admissions staff.

You should be assigned an admissions counselor at each school. Be sure to reach out to them if you have important questions, especially if it affects your decision about where you will be attending, such as costs, or any other key factors in decision making.

Finally, get organized for your senior year and create a plan for applications so you can balance completing applications with your senior year coursework and activities. This will also help to keep the stress to a minimum. Reach out for help from parents and school counselors when needed.

Remember: most of the hard work is done!

Head into fall organized and prepared with enthusiasm to complete college applications. Before you know it, the holidays will be here, and your students may soon know where they’ll be headed off to college next year.

-DC

Donna Cournoyer
In Personal Data Security

Identity Fraud: A Cautionary Tale

Our colleague and MFA founder Susan Moore contributed the following article.

Over the last weeks, I’ve received six letters that went something like this:

“Dear Susan – We’ve received your application for a credit card. We are unable to act on your application at this time because we’ve received notification from [Experian/Equifax/Transunion] that you’ve placed a security freeze on your credit file.”

I expect that I’ll receive more letters like this in the coming weeks.

Somewhere along the line, elements of my identifying information, including my Social Security number, have been hacked. That’s not really surprising.

Identity fraud is a growing concern in today’s digital age, impacting millions of people each year. As your financial planners, we want to provide you with the information and tools to help you protect yourself from this pervasive threat.

The Scope of Identity Fraud

Identity fraud affects a significant portion of the population in the United States. According to a report from Javelin Strategy & Research, approximately 33% of U.S. adults have experienced some form of identity theft. This means one in three people have had their personal information compromised, leading to financial loss and emotional distress.

How Is Information Stolen?

Fraudsters use various methods to steal personal information. Here are some common ways:

  1. Data Breaches: Large-scale data breaches at companies can expose millions of individuals’ personal information, including Social Security numbers, addresses, and financial data.
  2. Phishing Scams: Fraudsters use emails, texts, social media messages, or phone calls that appear to be from legitimate sources, tricking individuals into providing personal information.
  3. Skimming: Devices placed on ATMs or point-of-sale terminals capture card information during transactions.
  4. Mail Theft: Stealing mail can give criminals access to bank statements, credit card bills, and other personal information.
  5. Social Engineering: Manipulating individuals into divulging confidential information through deceitful tactics.

Notable Companies Affected by Data Breaches

A number of high-profile companies have experienced data breaches, exposing millions of people’s personal information, and the list keeps growing. A few of these include:

  • Equifax: In 2017, the credit reporting bureau Equifax suffered a data breach affecting over 147 million people, compromising Social Security numbers, birth dates, addresses, and driver’s license numbers.
  • Target: In 2013, Target experienced a data breach that affected 40 million customers’ credit and debit card information.
  • Yahoo: Yahoo faced a series of data breaches between 2013 and 2016, affecting all 3 billion user accounts.
  • Marriott: In 2018, Marriott disclosed a data breach that exposed information on approximately 500 million guests.

How to Place a Credit Freeze

Placing a freeze on your credit report can prevent fraudsters from opening new accounts in your name.

Even though the fraudsters who tried to open accounts in my name has my Social Security number, their efforts failed because I have a freeze on my credit reports.

Here are instructions for placing a freeze with each of the three major credit bureaus:

  1. Visit the credit bureau’s website or call them
  2. Provide the required personal information
  3. Create a PIN to manage your freeze
  4. Confirm the freeze through the method provided (online, phone, or mail)

And here is the contact information for each of the major credit bureaus:

Equifax

Experian

TransUnion

It’s important to put a freeze on your records at all three of the above agencies. And although the above three companies are the largest credit reporting agencies, there is another one: Innovis. You can place a freeze on your records there by calling 1-866-712-4546 or going to their website.

Additional Tips to Protect Against Credit Fraud

  • Use Extreme Caution in Sharing Your Personal Information. Don’t share personal information over the phone or online unless you are certain of the recipient’s identity. Don’t assume that because you’ve been asked for information, you need to provide it.
  • Example 1:if filling out a new client/account/patient form that asks for your SS number, try leaving it blank, and see if you’re asked again to provide it.
  • Example 2:If you receive a phone call asking for personal info, it most likely is an attempt to steal your information for fraudulent purposes. Be suspicious of these calls. Ask them to send you a request in email or snail mail. (Don’t ask for a phone number where you can call them back; they often have set up fake phone numbers to trick you.)
  • Monitor Your Credit Reports: Regularly review your credit reports from Equifax, Experian, and TransUnion to check for unauthorized activity. You can get a free report annually from each bureau at AnnualCreditReport.com.
  • Use Strong Passwords: Create strong, unique passwords for your online accounts, and update them regularly. Consider using a password manager to keep track of them.
  • Enable Two-Factor Authentication (2FA): Add an extra layer of security to your online accounts by enabling 2FA, which requires a second form of verification.
  • Shred Personal Documents: Shred any documents containing personal information before disposing of them.
  • Secure Your Devices: Use antivirus software, keep your operating system updated, and be cautious when downloading apps or software.

Identity fraud is a serious threat that requires vigilance and proactive measures to mitigate.

By understanding how fraudsters operate and taking steps to protect your personal information, you can significantly reduce the risk of falling victim to identity theft.

If you suspect your identity has been compromised, act quickly to minimize potential damage. As always, feel free to reach out for assistance or guidance in safeguarding your financial future.

-SM

Donna Cournoyer
In Financial Planning

Inherited IRAs: Final Ruling from the IRS

Most people who have inherited a retirement account since 2020 must take minimum distributions every year if the original owner was already old enough to be taking Required Minimum Distributions (RMDs). And beneficiaries must withdraw whatever is left over by the tenth year.

The original SECURE Act, which took effect in 2020, included rule changes for retirement account withdrawals, including a requirement to empty an Inherited IRA within ten years, if you inherited it after 2019 (the “10-Year Rule”).

But since passage of the Act, there has been confusion regarding how beneficiaries who are not surviving spouses must handle their inherited retirement account withdrawals.

We’ve written on this topic previously in April 2024 and August 2023, and now we have clarity through Final Regulations issued by the IRS on July 18, 2024.

Non-Eligible Designated Beneficiaries (essentially anyone who is not a surviving spouse) must take RMDs annually from Inherited IRAs.

The RMD is a minimum amount that’s calculated by dividing the account’s balance at the end of the previous year by the owner’s remaining life expectancy, using the IRS’s actuarial data. Account owners can take larger distributions, which may be advantageous in lower-tax years.

If you inherited an IRA after 2019 and have not taken a distribution or have missed a year, that’s OK.

The IRS has confirmed that there will be no penalty and no requirement to make up a missed distribution – which means the new regulation effectively starts with RMDs required to be taken in 2025.

In addition to this, there is other regulatory guidance for specific circumstances where the new rules for Eligible and Non-Eligible Designated Beneficiaries apply.

These regulations introduce more complexity to the process of tax planning around retirement accounts, particularly after the death of the account’s original owner.

If you’ve inherited an IRA after 2019 and have questions regarding your withdrawals, please reach out to us.

-RK

Donna Cournoyer
In Behavioral Finance

US Politics: On Your Marks

The phrase “On your marks” is used to instruct competitors in a race to prepare themselves in the correct starting position. This was telegraphed to US citizens on July 21, when Joe Biden bowed out of the Presidential election contest.

PredictIt is a New Zealand-based online prediction market that offers exchanges on political and financial events. The benefit of allowing people to put their money where their mouths are, when it comes to politics, is that we get an unvarnished view as to what people really think of who will win an election.

Here’s a chart of how folks were laying bets around the outcome of the US Presidential race from mid-April through mid-July.

The spread between Trump and Biden / Harris widened substantially following Biden’s poor debate performance in late June.

And here’s an updated 90-day picture, as of July 31, ten days after Biden bowed out.

It indicates that momentum is favoring Harris, who now has a slight lead on PredictIt.

The betting market confirms what recent opinion polls are saying: the race for US President is currently in a statistical dead heat.

Many of us have strong feelings about the people who run for office and take on the responsibility to represent us in government.

Because politics touches many parts of our lives and plays a role in how we as a nation are perceived by others in the world, it’s understandable why a presidential election stirs sentiment.

However, when investing, it’s advisable to set emotions aside.

Policies, not personalities, are likely to have the greatest impact on financial markets in the years ahead.

 -RK

Donna Cournoyer
In Market Updates

July 2024 Market Recap: Financial Market Rip Currents

A rip current is a strong, narrow jet of water that moves away from the coastline.

If you’re an ocean swimmer caught in one, the best strategy is not to fight it, but relax, go with the flow, and try to swim parallel to the beach. Eventually, you’ll move out of the rip current and be able to swim back to shore.

In mid-July, the first rip current began to move through the financial markets.

Tech stocks, which had been leading the broader stock market higher throughout 2024, stumbled. But small company stocks, which have lagged performance-wise for years, soared.

Below is a snapshot of financial market performance for July.

US Small Co = Russell 2000 Index; Foreign Stocks = MSCI EAFE Index; US Bonds = Bloomberg US Aggregate Bond Index; US Large Co = S&P 500 Index; Tech Stocks = Russell 1000 Technology Index

While political developments grabbed lots of headlines—including an assassination attempt of a former US President and the announcement that the sitting US President wouldn’t seek a second term—these weren’t events that had a large impact on financial markets.

The July outperformance of small company stocks appears to be linked to expectations for short-term interest rates.

Small companies rely mainly on banks for financing, whereas big companies have more borrowing options, including issuing bonds. Interest costs associated with bank debt float up or down with short-term interest rates.

Because of this reliance on bank loans, the thinking goes that small companies will get a financial boost as short-term interest rates fall. Many market participants believe that the Federal Reserve will reduce interest rates sooner rather than later, so demand for small company shares increased markedly in July.

Financial market prognosticators are referring to this preference to favor small company stocks over large company stocks a “rotation trade”. For investors with well-balanced portfolios, this phenomenon with the wonky name may be interesting to observe but needn’t be viewed as a call to action.

A second more consequential rip current also began moving through the financial markets in July.

This rip current has to do with the anticipation of an economic slowdown, and the feeling that the Federal Reserve has waited too long to bring down its target for short-term interest rates to provide financial relief to business and consumer borrowers.

The Employment Situation Report, released by the US Bureau of Labor Statistics on Friday, August 2, seemed to validate this concern, because it showed less robust US jobs growth and a higher unemployment rate.

From the recent peak on July 16 through August 2, US large company stocks have declined by 5.5%, and technology shares approached correction territory, having fallen by 9.5%.

Financial market choppiness, which we experienced in the second half of July, and which accelerated in early August, likely will be with us for the next few months.

August, in particular, has historically been one of the more volatile months for stocks.

Also, the US election cycle has moved into high gear, with more to come regarding policies (potentially good or bad) that might affect the economy and financial markets.

However, the US economy continues to be in a good place:

  • companies are still hiring
  • businesses are generally holding onto employees
  • corporate profits are rising
  • inflation is decelerating
  • the Federal Reserve is likely to bring down short-term interest rates soon

These economic positives should help investors ride through the financial market rip currents.

The chart below, published by the Hartford Funds, provides some perspective on what has happened to stocks in the past when the Federal Reserve (the Fed) reduces interest rates.

Hartford Funds identifies twenty-two periods of Federal Reserve interest rate reductions (when the Fed cuts rates) since 1929. In sixteen of these instances (72% of the time) stocks rose during the year of the Fed cuts.

Most pertinent to today’s situation: in all six instances when interest rate reductions occurred during times of economic expansion (grey bars in the chart above), stocks have finished higher by year end.

And the average annual gain during periods of economic expansion paired with Federal Reserve interest rate reductions has been 11%.

-RK

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