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Welcome to the Center for Financial and Consumer Outreach's November installment of Mindful Money for the 2011-2012 year! This month both Katrina Boyer of the PA Department of Banking and Rick Hedderick, an associate professor of finance at Penn State Erie, the Behrend College, will lend their experience and expertise. |
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Mindful Money | |
How to Protect Yourself from Financial Fraud
Katrina Boyer, PA Department of Banking
As a young adult, I received a notice in the mail announcing that I had won the Canadian Lottery (even though I had not entered). Before I had the chance to celebrate, my mother told me, "if it sounds too good to be true it probably is." I still use my mother's advice with many people I meet in my work.
Today, my mother's words of wisdom are needed now more than ever to combat scams such as:
The "Relative in Distress" scam. You get a phone call... "Grandma, is that you?" a voice asks. Eventually, the fraudster catches someone off guard who will answer and say "yes Timmy (or Suzy), it's Grandma, how are you?" - The conversation leads to "Grandma, please do not tell my parents. I am in another country and have been arrested. Will you please wire me $500 so I can get out of jail?" Grandma, who wants to help out, wire transfers the money, perhaps more than once... Several transactions later, Grandma gets around to asking her son or daughter about Timmy (or Suzy), only to find that her grandchild has never left the country and was never arrested.
The "Foreign Lottery" scam. Like me, you receive a letter announcing that you have won the national lottery of a foreign country, entitling you to several million dollars! The letter informs you that in order for the lottery "commission" to send your winnings, they must collect a small percentage of the winnings for taxes and other fees. You are instructed to send, say, $1,700 by Western Union to a "commissioner" named "Joe Smith." That is pretty exciting stuff - you wire the money as requested, and never hear from the fake lottery commission again.
Identity Theft is a special kind of financial scam, when someone uses personal information like your name, Social Security number or credit card number without your permission in order to commit fraud or other crimes. This can include using your existing credit cards or gathering your information and applying for new ones in your name. It can also be a fraudster using your identity to rent an apartment, open a cell phone account, or obtain a job.
I could name scams that take place on a daily basis and never finish because new scams are invented every day. Instead of worrying about these threats, take action to protect yourself from becoming a victim:
- To avoid becoming a victim, make sure you are talking to a reliable company. Hang up if they called you "out of the blue." Call the telephone number you find listed in the phone book or on an old statement to verify that they are who they say they are.
- Avoid high pressure sales tactics. If you do not have time to think about a decision, your answer should be "no."
- Buy a shredder and use it to shred anything printed with your personal information.
- Do not carry your Social Security card with you.
- Only carry credit cards that you may need - keep the rest of them under lock and key until you plan to use them.
- Monitor your mail. If you have mail delivered to a box outside of your home, pick it up as soon as it is delivered. If you live in a high crime area, or if it is common for you to receive sensitive information by mail, consider renting a box at your local post office to receive mail.
- Memorize your pin numbers and passwords. Do not keep them written on something you carry in your wallet or purse.
- Check your credit report often - you are entitled to a copy of your credit report every year from each of the three main credit bureaus. Find out more at www.annualcreditreport.com.
- Take your name off junk mailing lists and register for both the state and national "Do Not Call" registries using these resources:
If you have questions or concerns about potential scams or any financial transaction, the Pennsylvania Department of Banking's trained, professional staff can answer your questions. You may reach one of our Consumer Services Specialists at 800- PA-BANKS (800-722-2657). The phone call is free and so are our services. Sometimes just talking through a scenario can help clarify your questions. If you have been a victim of identity theft or a scam, our specialists can offer suggestions on your next steps.
And remember:
"If something sounds too good to be true, it probably is."If your instincts are telling you something is not right, just say no. |
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Mindful Money | |
Investing in 2012
Rick Hedderick MBA, CFP
Let us first begin by differentiating between saving and investing. Saving refers to safety where investing involves taking risk. A saver typically uses such instruments as savings accounts, money market accounts and certificates of deposits. An investor uses riskier instruments like stocks and bonds. Savers need safety and liquidity for the short term, where investors have a long term goal they are trying to achieve and are willing to forego the short term security with small returns for an opportunity to receive higher returns over the long term.
For most of us, our largest investment goal is retirement. In today's volatile markets it has become increasingly difficult for investors to achieve profitable results. When setting a retirement goal we must be specific, such as when do I want to retire? How much income do I want from my retirement savings? How many years do I want this income? How much volatility can I handle and still sleep at night? With the answers to these questions we are able to determine how much we need to invest and also with the help of our investor profile questionnaire we can allocate our investments among different asset classes to diversify our portfolio.
The advantage of a diversified portfolio is that we will recognize less drastic fluctuations in our account value. An aggressive investor may invest eighty or ninety percent of their investments in stocks where a conservative investor would put eighty to ninety percent of their investment in bonds. The dilemma is that if we are too conservative we are settling for a lower return which means we will need to invest more money to achieve our goal. However if we are too aggressive we may not be able to handle a declining market that we thought we could and then we end up selling our stock funds when they are low and say when the market comes back up we will move our money back in to the market. In essence we are doing the complete opposite of what we should be doing. Once we determine our asset allocation we should only make changes to rebalance our allocation.
If we were to simplify asset allocation we would say there are only two asset classes, stocks and bonds and we are going to put fifty percent of our money in each. Typically during the year one class will do better than the other class, unfortunately we don't know in advance which class will do best. So now we have invested for twelve months and because bonds have performed better than stocks during this period our allocation is 55% bonds and 45% stocks. Now we should rebalance our allocation by selling the additional 5% of our bonds and buying stock with the proceeds. We have now rebalanced our portfolio to 50% bonds and 50% stocks. In essence, what did we just do? We sold some of our bonds when bond prices were higher and bought stock when the stock price was lower.
In the 1980's and 90's when stocks were doing very well most investors didn't rebalance their portfolios because they didn't want to miss out on the higher returns they were getting. However most didn't realize that they were also increasing the risk in their portfolio. Then, when the market corrected and stock prices fell many of these investors sold their stocks, losing some or all of their previously earned returns. We should buy stocks at a lower price and then sell them at a higher price.
My advice for 2012 is to design a portfolio with an allocation that fits your risk tolerance and be sure to rebalance your portfolio once or twice a year back to your original allocation. Don't let fear and greed determine your allocation.
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About the Experts | |
Katrina Boyer joined the Pennsylvania
Department of Banking in February of 2004. Since 2004, she has served as a Consumer Services Specialist, where she specializes in consumer inquiries and complaints regarding the companies and professionals that are regulated and licensed by the PA Department of Banking. As the Consumer Group Relations Coordinator, Katrina talks to consumer groups and provides them with information about the PA Department of Banking, as well as educating Pennsylvanians on various financial topics.
 Rick Hedderick, MBA, CFP has been an associate professor of finance at Penn State Erie, the Behrend College since the Spring of 2008. Before joining the Penn State Behrend faculty, Hedderick graduated from Clarion State University in 1983 with a degree in business administration. Following his education at Clarion, he owned and operated a small retail business in Erie, PA for 16 years. In 2000, Mr. Hedderick obtained his MBA from Penn State Behrend. Four years later, Rick obtained his CERTIFIED FINANCIAL PLANNER (CFP) certification and began his practice as a financial planner, which he continues today in addition to his full-time teaching position at Penn State Erie, the Behrend College.
If you have any further questions for either Katrina Boyer or Rick Hedderick, feel free to contact them at their email addresses provided below. For more information, visit the PA Department of Banking's site here, or Penn State Erie, the Behrend College's site here.
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