Radio Show: Coronavirus and Your Money Continued

Happy Memorial Day weekend! Certainly one to remember as it has quite the different feel this year. Here’s another show where we spend the first hour answering all the various coronavirus related money questions that continue to flood the inbox.

In hour two we’re first joined by Kathy Kraninger, Director of the Consumer Financial Protection Bureau, as she outlines what’s being done to help individuals and businesses navigate this period of uncertainty.

If you are facing financial difficulties as a result of the coronavirus pandemic, the CFPB has plenty of up-to-date information and resources to help you protect and manage your finances during this difficult time.

Next up in hour two is Elizabeth Rutledge, Chief Marketing Officer at American Express. Elizabeth joined us to talk about Stand for Small, a coalition of more than 40 companies across media, technology, consumer goods, professional services, and many other industries, that have come together to provide meaningful support to small businesses as they navigate the impacts of Covid-19.

If you’ve been impacted by the pandemic, here’s a bunch of helpful links:

Pandemic Lifeline Resources

NYT F.A.Q. on Coronavirus Bill

Prioritizing Bills Tool

Coronavirus State Unemployment Benefits Filing Info

Coronavirus Mortgage Relief

Coronavirus Student Loan Information

Coronavirus Guide for Small Businesses

Coronavirus NYT Small Business Program Q&A

Have a money question? Email me here.

"Jill on Money" theme music is by Joel Goodman, www.joelgoodman.com.

Will the Post-Election Stock Rally Last?

Stock indexes staged a broad, post-election rally, as investors pushed aside their concerns about a potential global trade war and a clampdown on immigration, and instead bet that President-elect Trump’s promise of infrastructure spending would propel profits at large industrial companies and his tax cuts would boost the economy. (Irony alert #1: Congressional Republicans have argued that the financial crisis stimulus (the $787B American Recovery and Reinvestment Act) did not work and fought against subsequent infrastructure spending plans as a way to boost economic growth.) While most believe that infrastructure spending would help the economy, the total impact would be largely determined by its size. At one point during the campaign, candidate Trump promised to spend about $550 billion over five years. If there is general agreement on the positive aspects of infrastructure spending, there is little consensus on Trump’s potential tax plan, which in its current form would disproportionately favor wealthier Americans.

According to the Tax Policy Center, by 2025, 51 percent of Trump’s tax reductions would go to the top one percent of earners (those earning more than about $700,000). Yes, the plan would raise the after tax income of middle class Americans by about 1.8 percent, but the top 0.1 percent would see a tax cut of more than 14 percent of after tax income. (Irony alert #2: The Trump tax plan would likely exacerbate income inequality that already exists and could be a surprise to those Trump voters who said that they felt left out of US economic progress.)

Economists caution that there are two other problems with the Trump tax plan: (1) rich people do not tend to spend their tax cuts; rather they redirect the savings into their investment accounts—that’s good for financial markets, but not so hot for the overall economy and (2) the tax cuts would cause a spike in federal debt levels – the plan would increase the federal debt by $5.3 trillion over ten years, according to the nonpartisan Committee for a Responsible Federal Budget. (Irony alert #3: Taken together, the spending and the tax cuts could balloon the national debt to more than 100 percent of GDP within a few years. How will fiscal conservatives make peace with that potential?)

Trump’s spending and tax cuts could help stimulate the economy in the short term, though the combination of those policies could also spur inflation and prompt the Federal Reserve to raise interest rates at a faster pace than currently expected. Under normal monetary policy, a faster rate hike cycle might snuff out a recovery. But some economists are more concerned that under President Trump, there would be a change in the composition of the Federal Reserve Board. (There will be a couple of vacancies next year and Fed Chair Janet Yellen’s term ends in February 2018.) A less disciplined Fed might accept more inflation, leading to higher long-term interest rates and a weak US dollar. A glimpse of how these policies could impact the bond was seen last week: more than $1 trillion was wiped off the value of bonds around the world.

Another area that could see big changes under President Trump is regulation. In addition to easing up on environmental rules, most expect to see a watering down of the Dodd Frank Wall Street reform, which had attempted to reign in the excesses, which contributed to the financial crisis. (Irony Alert #4: A populist President, put in office by an electorate that hates banks, would make life easier for the financial services industry. Financial sector stocks increased by 11 percent last week.)

Under Trump, the Consumer Financial Protection Bureau (CFPB), which was created out of the Dodd-Frank Act, will likely get diluted. In October, a federal appeals court ruled that the CFPB was “unconstitutionally structured” and as a result, the agency should be treated like others, where the president can supervise, direct and change the director at any time. Current CFPB chief Richard Cordray is unlikely to keep his job.

And finally, the big investment firms, which fought tooth and nail NOT to put clients’ interests first, are ready to resurrect their battle to water down the consumer-friendly Department of Labor Fiduciary Rule set to go into effect in April 2017.

MARKETS:

• DJIA: 18,847, up 5.4% on week, up 8.2% YTD (best week of 2016, biggest weekly gain since Dec 2011)
• S&P 500: 2164, up 3.8% on week, up 5.9% YTD
• NASDAQ: 5237, up 2.8% on week, up 4.6% YTD
• Russell 2000: 1282, up 10.2% on week, up 12.9% YTD
• 10-Year Treasury yield: 2.12% (from 1.77% week ago)
• British Pound/USD: 1.2593 (from 1.2518 week ago)
• December Crude: $43.41, down 1.5% on week, 3^rd consecutive weekly loss
• December Gold: $1,224.30, down 6.2% on week, lowest close since early June and worst weekly loss since June 2013
• AAA Nat'l avg. for gallon of reg. gas: $2.18 (from $2.22 wk ago, $2.20 a year ago)

THE WEEK AHEAD:

Mon 11/14:

Tues 11/15:

Home Depot

8:30 Retail Sales

8:30 Empire State Manufacturing

8:30 Import/Export Prices

Weds 11/16:

Cisco, Lowe’s, Target

8:30 PPI

9:15 Industrial Production

10:00 Housing Market Index

Thursday 11/17:

Wal-Mart, Staples

8:30 CPI

8:30 Housing Starts

8:30 Philly Fed Business Outlook

10:00 E-Commerce Retail Sales

Friday 11/18

10:00 Leading Indicators

Trump Wins: What Should Investors Do Now?

Defying the polls and odds, Donald J. Trump won the Presidential Election. As the results became clear on the evening of November 8th, financial markets around the world reacted swiftly: stocks plunged (at one point during the overnight session, US futures were down 5 percent, indicating a more than 800 point wipe out for the Dow Jones Industrial Average), the Mexican peso cratered by 13 percent, the US dollar tumbled and safe havens like gold, US Treasury bonds and the Japanese yen, jumped. Then a strange thing happened: as Mr. Trump spoke in the wee hours after capturing enough Electoral College votes to win, markets started to reverse course, as investors seemed to take some comfort in his conciliatory tone. By the time they rang the opening bell on the day after the election, stocks had steadied and actually closed higher on the session. So much for predictions of stock market crashes, at least in the short term!

So what happened over the course of 18 hours? It could be that investors may have learned a lesson from the UK Brexit vote. After that unexpected outcome in June, US stocks were down 5 percent in the subsequent two trading sessions, but then slowly marched back up, as investors concluded that it would take a long time to figure the impact of Great Britain’s departure from the European Union.

While investors had been concerned about some of candidate Trump’s campaign rhetoric on trade and immigration, in the immediate aftermath of the election, it was hard to measure the impact on the US and global economy as well as what future policies could mean for corporate earnings. Still, hours after the results came in, I was inundated with reader/listener/viewer questions that went something like this: “What should I do with my retirement account?” The answer for long-term investors is clear: ABSOLUTELY NOTHING!

Unexpected events can create market volatility—both to the upside and the downside, which can lure you into feeling like you should do something. Try to resist that urge by reminding yourself that you are not investing for the next four weeks, four months or even four years--you are trying to build your nest egg beyond those time frames. And even if you were planning on retiring at the end of this year, you aren’t likely to pull all of your money from your account at once – you need it to last for decades in the future. In other words, you are not investing to retirement; rather you are investing through retirement.

That’s why you have created a diversified portfolio, based on your goals, risk tolerance and time horizon - because over the long term, this strategy works. Yes, the unknown is scary and can lead to market volatility, but you have to refrain from being reactive to short-term market conditions. It’s not easy to do, but sometimes the best action is NO ACTION.

If you were freaked out when you saw big numbers on the downside, maybe your portfolio has too much risk. If that’s the case, you may need to readjust your allocation to better align with your risk tolerance. If you do make changes, be careful NOT to jump back into those riskier holdings after markets stabilize. Conversely, if you were kicking yourself for not being fully invested as stocks swung back to the upside, you might need to hold your nose and get back in. Battling emotions is something every investor encounters-one way to help you out is to establish auto-rebalancing for your accounts, which can help take fear and anxiety out of the investment process.

Here are some (early) potential financial/regulatory outcomes that could arise from the 2016 Election:

• Markets: Volatility will continue until there is greater clarity on the Trump Administration’s priorities
• Trade: The Trans Pacific Partnership is likely a dead deal, but how Trump “renegotiates” NAFTA or goes after China as a currency manipulator will be key in determining whether or not he could ignite a global trade war.
• Taxes: Trump’s plan will come under closer scrutiny, because his trillions of dollars worth of tax cuts could balloon the national debt to more than 100 percent of GDP within a few years. How will fiscal conservatives make peace with that potential?
• Federal Reserve: On course to raise interest rates at the December meeting, but some Governors might step down after that occurs. President Trump can make appointments to the FRB to fill vacancies, but he is stuck with Chair Janet Yellen until her term ends in February 2018.
• Consumer Financial Protection Bureau (CFPB): In October, a federal appeals court ruled that the CFPB was “unconstitutionally structured” and as a result, the agency should be treated like others, where the president can supervise, direct and change the director at any time. Current CFPB chief Richard Cordray is unlikely to keep his job.
• Dodd Frank: Would be one of the great ironies to have a populist President, put in office by an electorate that hates banks, lighten up the regulatory impact stemming from the financial crisis.
• Department of Labor’s Fiduciary Rule: The rule is set to go into effect in April 2017. Get ready for big investment firms, which fought tooth and nail NOT to put clients’ interests first, to resurrect the battle and to water down this consumer-friendly rule.

Preventing Senior Fraud

In honor of the recent World Elder Abuse Awareness Day and the fact that senior fraud is practically an epidemic, here’s a sobering fact: It's estimated that fraud costs Americans over $50 billion a year and those 65 and older are often the targets. The reason is as true today as it was for legendary bank robber Willie Sutton: criminals go "where the money is"—and that means targeting older Americans who are nearing or already in retirement. Additionally, the bad folks have also latched to something that many have long suspected: as we age, we tend to make more emotional decisions. Researchers at the Stanford Center on Longevity, in collaboration with the Financial Industry Regulatory Authority (FINRA) and AARP, recently released a study that found older investors are more susceptible to fraud than younger ones, due to the emotional states — both positive (excited) or negative (angry)—they were experiencing.

According Doug Shadel, one of the authors of this new research, "Whether the con artist tries to get you caught up in the excitement of potential riches or angry at the thought of past and future losses, the research shows their central tactic is the same and just as effective…Cons are skilled at getting their victims in to a heightened emotional state where you suspend rational thinking and willingly hand over your hard earned money to a crook.”

To protect yourself or an older friend or family member, try not to act when you feel yourself in a heightened emotional state. If you are on the other side of a high-pressure sales tactic like, “Act Now”, “Time is running out!” or “This is a onetime offer”, run the other way. The same goes for any pitch where you are being asked to pay upfront fees, told that won a contest that you didn’t enter or receive unsolicited mail, emails, or phone calls for services that you were not seeking. Practice saying “No” or “I'm not interested. Thank you.”

The preceding approaches may seem obvious, but even some seemingly legitimate investment ideas may be unnecessary and expensive or at worst, fraudulent. According to the Boston University Center for Retirement Research, here are some red flags for shady investment pitches:

• Look too good to be true.
• Offer a very high or “guaranteed” return at “no risk” to the investor.
• Suggest recipients do not tell family members or friends about the offer.
• Lure prospective investors with a “free lunch.”
• Cannot be questioned, inspected or checked out further.
• Are so complex that they are difficult or impossible to understand.

In order to protect yourself or your relatives, the Consumer Financial Protection Bureau, FINRA and the SEC offer these tips:

1. Sign up for the Do Not Call Registry at https://www.donotcall.gov.
2. Shred junk mail, old bills, bank statements and any other documents that have personal identifying information.
3. Don’t give out personal information over the phone unless you originated the call and you know with whom you are talking. Particularly safeguard your social security number.
4. Be rude. At the slightest hint of pressure, feel free to hang up the phone or close the door.
5. Never sign something that you don’t understand. Have a trusted and unbiased professional assist you when enter contracts or signing legal documents.
6. If you hire someone for personal assistance services, in home care services, etc. ensure that they have been properly screened with criminal background checks completed.

Family members should encourage their older relatives to discuss any unsolicited offers before writing a check. If you suspect fraud or a questionable practice, call FINRA's toll-free Securities Helpline for Seniors (844-57-HELPS) or go to http://www.finra.org/investors/finra-securities-helpline-seniors.

Keeping Score on Credit

The use of credit scores and reports dates back nearly 60 years. In 1956, engineer Bill Fair and mathematician Earl Isaac formed the Fair Isaac Corporation (FICO) on the premise that data could be mined and used to inform business decisions. Two years later, the company rolled out its first credit scoring system. FICO honed the score and currently sells it to banks, insurers, retailers and credit card companies. As the company declares on its web site, the use of its data and mathematical algorithms “to predict consumer behavior has transformed entire industries.”

The current FICO score ranges from 300 to 850. Borrowers with scores above 750 are generally considered excellent, while scores below 650 are considered poor. The three most important factors that determine your score are: Payment History (and especially paying bills on time); total debt outstanding, which takes into account how many accounts you have and how close you are to your credit limit; and the number of inquiries made into your credit file. Inquiries are broken into "soft" (for preapproved offers; for insurance or employment purposes; and for when you check your own credit report or score) and “hard” inquiries, like when you are shopping for a mortgage, auto or student loan can. Soft inquiries do not hurt your score, while hard ones count against you.

The use of credit scores was less important in the run up to the financial crisis, when in the year of easy credit, it seemed like anyone with a heartbeat could borrow money. But in the aftermath of the Great Recession, financial institutions would only lend to the best borrowers with the highest scores.

Not only has the FICO score has transformed businesses, it also has assumed a major role in the financial lives of consumers. Credit reports and scores are being used for more than borrowing and lending. Landlords often use credit data to research potential tenants; and in many states, it is perfectly legal for prospective employers to check credit.

The ubiquitous use of credit scores makes their accuracy all the more important. If scores are lower, due to bad data or error-ridden reports, a consumer’s cost of borrowing could be higher than it should be or their living arrangements or job prospects could be negatively impacted. Unfortunately, the Consumer Financial Protection Bureau conducted a 14-month probe, which found that it is notoriously difficult for consumers to correct credit report errors.

As regulators continue to oversee the rating and scoring industries, there could be good news for millions of consumers with shaky credit. FICO is testing a new product, which is calculated using consumers’ payment history with their utility companies. You probably didn’t realize that over 70 cable companies, cell phone companies and utility providers already contribute to a national database called the National Consumer Telecom & Utilities Exchange (NCTUE), on which Equifax already reports.

The new score will also incorporate data from LexisNexis, to determine how often people change addresses -- frequent changes suggesting less stability and greater risk for the lender.

FICO is developing the alternate score to sell to its clients, who are trying to determine how to make loans to – and money from – those consumers who otherwise wouldn’t qualify; and as a result, have been shut out of mainstream borrowing. There is a vast market—according to FICO, 53 million Americans currently have credit scores that are unacceptable to lenders or don’t have scores at all.

While gaining access to credit could help many, chances are, banks will charge riskier borrowers higher interest rates and pile on extra fees. Additionally, young adults will need to be conscientious about paying all of their bills on time, else risk seeing a ding on the new credit score. They also may worry about frequent address changes.

Finally, critics of the new score believe that lending money to shaky borrowers is one of the factors that contributed to the financial crisis and should be avoided at all costs. Or in honor of the start of baseball season, it could be what Yogi Berra once called "Deja-Vu all over again."

Financial Thanksgiving 2014

Thanksgiving is a time when we can give thanks for all of the blessings in our lives, like health, loving spouse, a wonderful family and amazing friends. But this is a money column, so this week, I would also like to give thanks to all of the amazing people and resources that have improved our financial lives. The Financial Planning Coalition: The collaboration of the Certified Financial Planner Board of Standards (“CFP Board”), the Financial Planning Association® (“FPA”), and the National Association of Personal Financial Advisors (“NAPFA”) continues to work on behalf of consumers to make the fiduciary standard the gold standard for financial advice-givers.

The Employee Benefit Research Institute (EBRI): The mission of EBRI is to contribute to, to encourage, and to enhance the development of sound employee benefit programs and sound public policy through objective research and education. EBRI has also developed an easy to use retirement calculator, which I wholeheartedly endorse.

Life Happens: While I have been a critic of some of the practices of the insurance industry, this nonprofit, founded by seven producer organizations, is dedicated to helping Americans take personal financial responsibility through the ownership of life insurance and related products, including disability and long-term care insurance. Of particular interest is the Life Happens Insurance calculator.

Mark Kantrowitz/FinAid.org: Mark created this terrific web site for education funding in the fall of 1994 as a public service. It is the quintessential resource for every would-be college student, providing informative, objective and valuable advice for students and their families, who are looking for ways to finance their education.

SSA.gov: I know that everyone complains about the Social Security system, but the government’s web site is a great tool. You can manage your account online and use the estimator to determine your future benefit.

Jack Bogle: When he was a junior at Princeton University in 1949, Jack Bogle decided to use the concept of index funds as the topic of his senior thesis. That decision eventually led to the creation of the modern index fund. In 1976, The Vanguard Group – then a new mutual fund company – rolled out the First Index Investment Trust, which ultimately became the Vanguard 500 Index Fund. The fund, which was originally referred to as “Bogle's Folly” has become the single best friend to retail investors.

AnnualCreditReport.com: In the aftermath of the credit boom and bust, there were singing pirates and a myriad of online offers to help consumers take control of their credit histories, but there was only one official site, guaranteed by Federal law, where you can obtain a free credit report annually.

Consumer Financial Protection Bureau (CFPB): The CFPB was created out of 2010’s Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFPB consolidated most Federal consumer financial protection authority in one place and focuses on one goal: watching out for American consumers in the market for consumer financial products and services. Although various regulators had consumer divisions, none has the sole focus of keep an eye out for us. The CFPB works to give consumers the information they need to understand the terms of their agreements with financial companies. They are working to make regulations and guidance as clear and streamlined as possible so providers of consumer financial products and services can follow the rules on their own.

Ann Marsh: Since we have just celebrated Veterans’ Day, I would like to highlight the work of Financial Planning Magazine’s Senior Editor and West Coast Bureau Chief. Ann’s phenomenal work highlighted how financial problems are weighing on our servicemen and servicewomen, and in some cases, contributing to suicide. Please read her article and if you are interested in supporting our veterans, please check out www.giveanhour.org, which is in the process of considering launching a financial planning arm of its services and www.psycharmor.org, which is putting together a new network of private sector professionals to help soldiers and vets, including financial planners.