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What's Happening at LPP

August 2012


In This Letter:
Six things to protect yourself from cyber-theft


Whitewashing History


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The year is passing quickly. We are busy with meetings on estate planning and projection planning. If you haven't already heard from us, you wll soon.  A lot will happen at the end of the year with the election, Bush tax cuts expiring, and health care reform kicking in.  We will be very busy in December doing your year end tax planning after we know how the politics play out. You'll definitely hear from us!

Six things to protect yourself from cyber-theft

By Krissy Di Candia


The internet is an incredible resource that has given us the power to receive news and information almost immediately. On the bad side, most of our financial and personal information is now held somewhere on the internet. This gives thieves and scammers new opportunities to steal information, known as cyber-theft. Below are a few practices that can help protect you from being a victim.


1) Beware of Phishing Scams

A phishing scam is where the thief will try to get your information by pretending to be someone else. For example: They send an email message that appears to be from your bank and asks you to click the link to update your password. DON'T DO IT. If you need to update your password go directly to the bank's site and follow the steps. Don't reply to emails, texts or pop-up messages that ask you to for personal or financial information unless you are certain it is the appropriate party.



2) Don't use Auto Fill Programs

These programs remember usernames and passwords. They create word banks that cyber thieves can steal from your computer if they gain access through a virus. Instead create a spreadsheet or place where you can keep a log of your passwords.



3) Be careful of what information you put in emails

You should never put full account numbers or your social security number in an email.



4) Create a strong password

The best passwords include all of the following - numbers, letters and symbols. It is a good practice not to use your birth date or name in the password. Consider creating a sentence you will remember.



5) Don't use your bank card for online purchases

Instead of using your debit or bank card for online purchases use a regular credit card that is not linked to your bank account. If it is lost or stolen you will not have to deal with your bank account being temporarily frozen.



6) Password protect your computer

A great way to keep a hacker from accessing your home computer is to create a simple password to log into it. Although this is a common practice at work many home computers are not protected, making them an easier target.




Whitewashing History

by Tim Utecht, CFA


Most of us have things in our past we would like to forget.

Personally, I'm not proud of breaking a classmate's collarbone in fourth grade. In my defense, I was reining King of the Hill and I thought I was under siege. (Turns out she was just trying to cross to another part of the playground - a judgment error in the heat of battle.)

Mutual fund companies also have past embarrassments they would like to hide - funds with really poor returns. Unlike the rest of us, fund companies have an easy way to deal with their unpleasant history. They can make it disappear.

A Wall Street Journal article recently publicized this little trick*. Poor performing mutual funds are often merged into other funds, or they may be liquidated altogether. Either way, the bad grades are completely wiped off the report card.

In academic circles, erasing bad performance is known as "survivorship bias." The winners continue to keep score (because it looks good), and the losers fade away. It sure makes the past look a lot rosier. It's like claiming par on a golf hole after taking three mulligans.

The Journal article highlighted the "market-neutral" fund category, a relatively new creation that began gaining popularity around 1997. These funds buy some stocks and sell others "short" (i.e. betting they will fall in price). The pitch was that a "skilled" manager should be able to enhance returns by profiting from both rising and falling stocks.

Morningstar, which tracks fund performance, reports an average return of 5.36% annually over the past 15 years for the market-neutral category (July 31, 2012). But that only reflects the survivors. Adjusting for all of the losing funds that were swept under the rug, the average return was just 1.68%. In other words, a lot of dreadful funds were wiped off the books. In fact, the article found that only 32 of the 62 market-neutral funds introduced between 1997 and 2007 are still in existence.

Even worse, the trendy "market-neutral" strategy designed to profit from market volatility didn't come close to living up to its billing. A simple S&P 500 index fund would have substantially outperformed the average market-neutral fund - to the tune of more than 2.5% per year.     

The moral? Beware of financial innovation - and the revisionist history used to promote it.

Link to WSJ article


Thank you for growing old with us! Let us know how we are doing and we welcome suggestions for what we can do better.


Warm regards, 



Carolyn, Tim, Victoria & Krissy
Life Planning Partners