If you haven’t already, you will soon be hearing alarming reports of the “dramatic rise of Treasury bond rates,” and the breathless implication in the articles and on the financial cable programs will be that this will have a disastrous effect on bond owners and the economy in general. Higher interest rates! More inflation! Lower economic growth! More interest on the ballooning federal debt! More competition for the stock market, and therefore lower stock prices!

Chart 1: Detail from a one-year tracking of 10-year Treasury Bond rates, showing what some have called an unprecedented rate rise.

If you look at the recent rise in 10-year Treasury rates in isolation, as several commentators have done (see Chart 1), it does indeed look remarkable: a rise of more than 70% from a May 2nd low of 1.63% to somewhere in the neighborhood of 2.90% as you read this. If the Dow were to jump that far, that fast, it would have risen from 14,500 to more than 25,500. Yikes! Maybe the headlines are justified after all!

But if you put the recent rate rise into a longer-term perspective (see Chart 2), the recent “dramatic rise” looks awfully puny compared with some of the long-term swings in market history, and the current rate still looks quite reasonable. The high percentage shift is more a reflection of how low rates had gotten than a rise to dramatic heights.

So what’s really going on here? You probably know why bond investors are asking for an extra 1.3% a year out of their longer-term fixed income investments these days: nobody knows when the Federal Reserve Board is going to stop buying Treasuries, or what, exactly, will happen when the elephant jumps off of the see-saw. The Fed’s most recent meeting minutes suggest that it will be cautious about winding down its QE bond buying program. And you can bet that Fed economists will be watching the market for signs of impending damage, and curtail their curtailment if they seem to be causing a ruckus. But that still leaves a bit of uncertainty about where rates will go.

Chart 2: The bigger picture: 10-year Treasury yields since the later 1800s. Note that the “unprecedented rise” is the little upward squiggle on the right-hand side.

All professional investors know for sure is that when a big buyer walks away from the marketplace, gradually or not, there will be less demand for whatever they were buying than there was before. Therefore bond issuers–including the U.S.–will have to pay more (i.e., higher yields) to lure in the fewer remaining buyers.

How much more? In other words, how much higher will bond rates go? How much will the bonds you own today lose value during the messy pullback from QE stimuli? We can make this second question easier to answer by simply pulling money back away from longer-term bonds until the dust settles, leaving it to the experts and institutional buyers to make educated guesses and read the tea leaves.

But you have to answer the first question in order to know the answer to the obvious third one: what other consequences will rising bond rates have on your other investments?

When market forces get back in control of the bond markets, they will be responding to three things: how scary are the alternative investments (and therefore how much do I want to put in bonds)? What is the current and expected inflation rate? And finally: where do I want to be on the yield curve? (Are the longer-term rates attractive enough to lure you away from the relative safety of shorter-duration bonds?)

Right now, inflation is pretty low, in part because the high joblessness rate is making it harder for workers to ask for huge raises, in part because the banks have a lot of money to lend and not a lot of people asking to borrow it. A recent report notes that an astonishing 82% of the U.S. money supply is currently on deposit at the Fed, mostly in accounts held by large banks. (To put that in perspective, the average percentage from January 1959 through the end of 2007 was 6.18%.) By the laws of supply and demand, banks don’t have a lot of leverage to demand high rates of interest.

If you believe that the unemployment markets are going to tighten up dramatically in the fairly near future, and that somehow millions of people will want to borrow most of the global supply of dollars, then you can project a high inflation rate. If not, then you should probably not worry about an explosion in the inflation rate for the foreseeable future.

When you’re talking about alternatives to bond investments, you’re mostly talking about stocks. If we see another Fall of 2008 scenario, people are going to flock to government bonds and drive rates higher. But the only thing we know about the Fed’s decision-making process, from its notes and internal policy debates, is that it is only going to start exiting its QE program when it thinks the economy is healthy. If the stock market starts to look edgy, or the U.S. starts sliding back into recession, you can bet that the Fed will want to keep interest rates low and be a tad more gradual about ending its QE activity.

As to the yield curve, at the moment, short-term rates on Treasuries and most other fixed-income vehicles are about as close to zero as you will ever see them again. The Fed has announced that its policy rate is 0%, and until the economy gets fully back on its feet and unemployment comes down dramatically, this is likely to continue to be its policy rate. The spread between 3-month T-bills and 10-year Treasuries is currently about 2.8%, which is nearly twice as high as the 1.5% historical average. Can it go higher? Yes. On two occasions since January of 1970, the spread has reached as high as 4%.

If you add up all these clues, you come out with something very different from the disaster scenarios you’ll be hearing in the news. The Fed is planning to stop buying Treasuries at some point in the future, and let market forces take over–but only when it feels like the economy is healthy, and only so long as it can do this without harming economic growth or hammering the stock market. The market forces themselves are unknown, but it’s hard to see how the ten-year Treasury bond will rise above 4%–or, to put that number in perspective, to the point where it is yielding about twice the dividend yield in the overall S&P 500 index. That still looks like pretty weak competition for stocks.

So what we’re seeing in the bond market appears, if you can get away from the breathless headlines, to be nothing catastrophic. Bond investors are demanding an extra 1.3% a year to compensate for all the uncertainty they face as they commit their money for the next ten years. They may well ask for a bit more in the future. Can you blame them?

Sources:
http://seekingalpha.com/article/1657072-how-high-are-yields-likely-to-rise?source=google_news
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=10_YEAR&insttype=Bond
http://www.minyanville.com/trading-and-investing/fixed-income/articles/What-if-the-10-Year-Treasury/8/26/2013/id/51458

In general, the bond market is volatile as prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Past performance is no guarantee of future results.

By Lauren Tara LaCapra, Copyright © 2013 Horsesmouth, LLC.

Identity fraud and other scams are not quite as common and usually not as damaging as purveyors of scam-prevention software and services make them out to be. However, they still exist and have the potential to seriously hurt a consumer’s finances and credit score.

About 30.2 million adults—or 13.5% of the adult population—report falling victim to fraud each year, according to the most recent Federal Trade Commission data.

Scammers have a few key tactics and targets. They often prey on the elderly, vulnerable, and naive. They can present themselves as “official” bank or government representatives in a convincing way. They pull at heart strings with pleas for aid to help victims of natural disasters or war. They guarantee profits from a too-good-to-be-true money-making scheme.

“Con artists are the only criminals that we call artists,” says Steve Weisman, a lawyer and author. “They can appeal to our impulses and psychological make-ups.”

Smart, skeptical consumers can largely isolate themselves from fraud and identity theft by watching out for certain signals and ignoring the fake pitches for help or money-making schemes. Here are some common schemes that victims are falling prey to today:

WEIGHT-LOSS SCAMS
Don’t buy bogus weight-loss products that promise to burn fat without effort.

Americans spend about $30 billion each year on weight-loss products and services, according to the Food and Drug Administration. Many fall victim to claims that a miracle pill or potion can help them “melt off 10 pounds in seven days” or “shed the fat without the diet!”

Those products are a huge waste of money and won’t work as advertised. More people—about 4.8 million—were victims of fraudulent weight-loss products than any of the other frauds covered by the FTC survey.

“Any claims that you can lose weight effortlessly are false,” states the FDA’s website. “The only proven way to lose weight is either to reduce the number of calories you eat or to increase the number of calories you burn off through exercise.”

FOREIGN LOTTERIES
Another prevalent scam involves e-mail messages advising consumers that they have won a foreign lottery and requesting account information to deposit the reward.

“It’s hard enough to win a lottery when you do enter it, much less one you never entered,” says Weisman.

Fraudulent foreign lottery offers tied with buyers’ club memberships are at second place for the top scams in the FTC survey, with about 3.2 million people getting duped by each type of scheme.

Never give your personal information to anyone claiming that you have won a prize. If you’re afraid of losing out on the reward, tell them to send you a check.

“OFFICIAL” EMAILS FROM BANKS OR THE GOVERNMENT
Weisman notes that crooks have also gotten better at making e-mails look “official” when they pose as representatives from the government, banks, or other institutions.

For instance, after tax day, lots of messages are sent out by impostors who request personal information, claiming to be from the Internal Revenue Service. The e-mails can appear to have official letterheads, emblems, and signatures, but they are simply fraudulent mock-ups. Thieves also target older victims by pretending to be representatives from the Social Security Administration.

Any e-mail, phone message, or mailing that requests account information should be independently verified by calling the bank or agency directly. Be sure to scout out the outlet’s contact information separately—don’t just call a phone number presented by the potential thief.

CURRENT EVENTS
Scammers will look for any opportunity to take advantage of “whatever the event of the moment is,” says Weisman. That includes scamming disaster victims by pretending to be FEMA workers, insurance adjusters, or contractors, or scamming generous donors by posing as charity representatives.

Others present themselves as Red Cross workers to military families and say a relative has been injured in Iraq and is being airlifted to Germany for treatment. The con artist then asks for additional information about the relative serving in the military—like their date of birth or Social Security number—as well as a donation to the Red Cross to help cover the cost of the airlift and medical care.

There are still others who claim to have technology to improve gasoline efficiency. They peddle the fake products to consumers struggling with high gas prices and convince others to invest in their company—and then take off with the cash.

Those suffering from mortgage woes must also be wary, since many scammers are taking advantage of the subprime crisis by claiming to have a quick fix or cheap solution. Instead, the thief charges processing fees without helping the borrower or convinces the borrower to sign over a home or open a home-equity loan, Weisman says.

“When someone is behind on their mortgage and is going to lose their house, and someone comes up to them and says, ‘I can help you out with your troubles,’ they want to believe,” he adds. “It’s the old ‘desperate times call for desperate measures.'”

Be wary of those claiming to be representatives of charities or who offer a quick fix for a complicated situation. Donate directly through a trusted method instead of someone who contacts you via phone or e-mail. If a product— like the gasoline device or mortgage solution—seems too good to be true, it probably is.

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Copyright © 2013 Horsesmouth, LLC. All Rights Reserved.
For the exclusive use of Horsesmouth Member: Carol Girvin
IMPORTANT NOTICE This material is provided exclusively for use by Horsesmouth members and is subject to Horsesmouth Terms & Conditions and applicable copyright laws. Unauthorized use, reproduction or distribution of this material is a violation of federal law and punishable by civil and criminal penalty. This material is furnished “as is” without warranty of any kind. Its accuracy and completeness is not guaranteed and all warranties express or implied are hereby excluded.

Here are some steps and precautions you can take to protect yourself and your family from online hackers:

1. Change your passwords from time to time. Don’t post anything on a social network you may use as a password: your birth date, pet’s name, mother’s maiden name or your school. Identity thieves can use the information you post to guess your password.
2. Do not email your credit card number to anyone. There are many phishing scams using Sony’s name now, but Sony, or any other company, will not contact you and ask for your Social Security number, credit card number or other personal information. Be cautious about opening any attachment or downloading any files from email you get, regardless of what company sent them. You can forward phishing emails to spam@uce.gov.
3. Monitor debt and credit cards for suspicious purchases at least weekly. If you feel your card information was stolen, consider canceling your linked card. Be persistent with watching your accounts; it may be months or even a year before thieves actually use your card.
4. Check your credit reports. You can get one free credit report every year from each of the three credit bureaus online or by calling (877) 322-8228. Stagger these reviews throughout the year in order to catch anything that isn’t correct in your account.
5. Protect your wireless router. If you use a wireless router, password protect it and enable the encryption to scramble the data you send online.
6. Use your credit card instead of debit card. Credit cards offer stronger fraud and identity theft protections.
7. Send out the word if you are worried. If you feel your information has been compromised, place a fraud alert at the three major credit bureaus. Call Experian at 888-397-3742; Equifax at 800-525-6285; and TransUnion at 800-680-7289. Put a security freeze on your files.
8. Don’t assume you’re as safe as you can be. Ask your bank if it has free software to protect your bank account. Some offer special protections for their online banking customers.
9. Contact the FTC. If your information has been stolen, file a complaint with the Federal Trade Commission. The information is used to create a picture of wrongdoing. Unfortunately, the FTC won’t get your money back.

Child identity fraud can be particularly prevalent during back-to-school season, but there are ways to stay safe.

Child identity theft is a growing problem in the U.S., with one in 40 households with kids under the age of 18 having been victimized, according to the Identity Theft Assistance Center. The fraudsters use a child’s personal data to get a new identity so they can get a job, government benefits, medical care, auto loans, and mortgages, the center says.

Child identity fraud can be particularly prevalent during back-to-school season, given the rise of sign-up forms, school registration, and dorm move-ins.

How can parents fight back?

The I.D. theft fraud prevention firm IdentityTheft911 offers the following tips for parents:

Don’t give up Social Security data unless you have to. IDTheft911 says some schools, especially day care centers and preschools, will ask for your child’s Social Security number. Don’t give it up so easily. Offer a birth date but explain you’re reluctant to share the Social Security numbers. Chances are they’ll go along.

Be careful at sporting events. Most parents have signed their kids up for soccer or baseball without really knowing who’s seeing that information. As IdentityTheft 911 says, some local athletic organizations are great at protecting that data—others are not. If in doubt, simply write in “contact me at [phone number] for information” before you release data, especially Social Security numbers and medical identity numbers. Once an organizer contacts you directly, ask them how they protect data from I.D. thieves, and give only what you have to. And never give out Social Security or medical I.D. numbers.

Watch for college-student scams. IdentityTheft911 says college students are a particularly attractive target to fraud artists. College kids are out in the real world, often without a healthy fear of real-world threats such as identity fraud. Make sure your college-aged son or daughter knows not to share sensitive data, and equip their computers, tablets, and smartphones with I.D. theft protection software to guard their personal identities.

Know what’s at risk—and protect it. The Identity Theft Assistance Center advises keeping all documents that show a child’s personal information under lock and key. At the very least, that information includes a child’s date of birth, Social Security number, and birth certificate.

Be aware that August and September are prime times for child identity theft. A lot of money and information is changing hands right now in preparation for the classroom, so keeping close tabs on both is the surest way to protect your family.

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Copyright@213 Horsesmouth,LLC All rights reserved
For the exclusive use of Horsesmouth Member, Carol Girvin
This material is provided exclusively for use by Horsesmouth members and is subject to Horsesmouth Terms & Conditions and applicable copyright laws. Unauthorized use, reproduction or distribution of this material is a violation of federal law and punishable by civil and criminal penalty. This material is furnished “as is” without warranty of any kind. Its accuracy and completeness is not guaranteed and all warranties express or implied are hereby excluded.

By Amy E. Buttell and Elaine Floyd, CFP®, Copyright © 2013 Horsesmouth, LLC.

With health care reform implementation getting closer and the memory of super storms still fresh, now is a good time to review insurance policies coverage, insurance needs, and emergency plans.

Insurance coverage tends to be the stepchild of family financial planning. All too often, insurance is obtained and then put on autopilot, only to be found inadequate when a disaster or problem strikes. That’s why it makes sense to take time every year to review insurance coverage, consider situations when new coverage may be required, and look at the implication of disaster planning on insurance coverage. Here are the types of coverage and issues to consider in any review of personal insurance policies:

HEALTH INSURANCE
Health care reform is changing the landscape of health insurance, removing previous barriers to gaining coverage, extending coverage to children up to the age of 26, and closing the doughnut hole for senior citizen prescription drug spending. With that in mind, here are some points for individual and family health insurance coverage that should be reviewed:

Medical deductibles and limits. For employees and senior citizens, open enrollment season provides an opportunity to review current policies and potentially change providers. When reviewing coverage or deciding whether to change to a new plan, take a look at deductibles, co-pays, and overall out-of-pocket expenses.

More employers are switching to high-deductible health insurance plans, where deductibles start at $1,250. Once the deductible is met, there are usually co-pays for doctor’s appointments, prescriptions, and other medical treatment. The overall out-of-pocket expense limit reveals the most you’ll have to spend in overall out-of-pocket costs. Also consider out-of-network costs in case you or a family member are traveling and require care out of town or a specialist needs to be consulted who is out of network.

What type of policy to choose depends on many factors, such as the overall health of family members, how often doctor’s visits and medications are needed, and the family budget.

Prescription coverage. Most plans provide for cheaper options that can save money, such as generic drugs, discounts, or prescription-by-mail availability.

HOMEOWNERS’ INSURANCE
Hurricanes and super storms are important reminders that home insurance coverage should be regularly reviewed and coverage increased in certain situations.

Homeowners’ inventory. It’s all too easy to buy jewelry, home office equipment, collectibles, and even upgrade a home through a renovation project without considering upgrading a homeowners’ insurance policy. Make a list of any significant renovations, new jewelry, home office equipment, collectibles, or other assets and review them with your insurance agent. Take up-to-date photographs or videos of all major belongings in the home and keep those pictures or videos in a safe place. Archive those photos or videos remotely via online storage.

Home replacement coverage. With home values down versus mortgages in many parts of the country, obtaining competitively priced “guaranteed replacement” or “replacement” coverage is critical. Call several insurers or insurance agents to obtain estimates on this type of coverage, and incorporate whatever change makes sense into your current or new coverage as soon as possible.

Flood and earthquake insurance options. Review the need for this coverage, because it’s not a part of standard homeowners’ policies.

Hurricane and windstorm coverage. This coverage varies by state and sometimes by county. Some states offer windstorm coverage pools for people who can’t get private insurance. Most states have high-risk pools or participate in federal programs that offer this type of coverage in coastal areas, so check with an insurance agent or state insurance department to make sure you have the latest coverage options and information.

Disaster planning. This isn’t a specific insurance issue, but it’s vital just the same. Create a document in a binder, folder, or online that includes all the information that loved ones would need in case of your death–keep a physical form of this information close to the items to grab in a crisis. It is vital that in case of a catastrophic event like a sudden death that loved ones have a single go-to guide with insurance, home, and estate information. It also makes sense to make a second copy for relatives.

UMBRELLA LIABILITY
Because it can be impossible to predict how much risk or liability certain situations may create – a bad car crash that a member of your family was responsible for or a fall on your property – many insurance agents recommend buying an umbrella liability policy.

Supplement to home and auto coverage. This type of policy provides coverage over and above a homeowners’ or car insurance policy in the event of a lawsuit. That way, if an unexpected event does occur that results in a lawsuit, legal and any settlement costs will be mostly covered by insurance.

DISABILITY INSURANCE
Many employers provide disability insurance, but that coverage may not be sufficient to truly cover earnings lost if a disability strikes.

Coverage specifics. Check any employer policy for specific coverage items like when it goes into effect, what kind of disabilities are covered, how much income replacement is offered, and how long it lasts. Many policies only replace 50% to 60% of income; a supplemental individual policy may be the way to increase that. Consider long-term and short-term coverage.

CAR INSURANCE
In a similar fashion to homeowners’ insurance, it is easy to set and forget car insurance deductibles and coverage. Reviewing and updating coverage can insure coverage when an accident or disaster occurs or save money if coverage previously required is no longer needed.

Specific issues. Higher deductibles can save money on the premium, but require higher out-of-pocket costs in the event of an accident or disaster, so weigh those variables out. If a disaster strikes, most comprehensive auto coverage will cover wind, flood, or earthquake damage. In the case of an older car that is paid for, skipping on collision insurance can be a real saver in terms of monthly premiums, but will mean no insurance payment if the car is in a collision.

SMALL BUSINESS INSURANCE
Small businesses face many risks, so if you’re a small-business owner, it makes sense to review and update your coverage frequently.

Specific issues. Coverage your business may need could include general and professional liability insurance, commercial property insurance and home-based business insurance. Business interruption insurance is another type of coverage that could help pay the bills if a disaster, disability, or other crisis intrudes on the ability of a business to continue operating for a period of time.

LIFE INSURANCE
There are two aspects to life insurance — the first is coverage of a family member’s life and the second is insurance on a third party’s life. There are a variety of reasons to have coverage in both of these situations.

Family coverage. Life insurance coverage should pay enough to ensure the preservation of the lifestyle of a surviving spouse and children, as well as the children’s educational goals. That includes money for ongoing expenses, debt payments, and tuition. Working spouses should also consider similar coverage. As painful as it might seem, it is also necessary to consider burial coverage for children.

Insurance on another person’s life. There are some cases when it makes sense to buy insurance on another person’s life due to the potential financial loss that could occur if that person died. In order to buy such coverage, the insured and the beneficiary must know one another and have an emotional or financial connection such that the insured wants the beneficiary to receive a benefit in the event of death. Circumstances in which you may want to consider purchasing such a policy include divorce, to protect an inheritance, for a business partner to keep a business going, or to collect on a loan.

In a divorce, the spouse who is making alimony or child support payments should be covered so the spouse receiving those payments still has a source of income support if the former spouse dies. It can also be a good idea for the former spouse who is taking care of the children to be covered by a policy so that if he or she dies, the working spouse can cover childcare expenses.

In the case of protecting an inheritance, insurance coverage can help ensure adequate cash to cover taxes and other post-death costs outside of probate. For the owner of a small business, the death of a partner can throw the whole future of the business into question, so an insurance policy and agreement can provide for the surviving partner to have the cash and agreement in place to buy the deceased partner’s share of the business. In the case of a personal loan to a family member or friend, an insurance policy can ensure that the loan is repaid if the borrower dies unexpectedly.

A FINAL WORD
It’s a good idea to regularly set a date to review insurance coverage and check with an insurance agent to make sure you have all the types of coverage you need at the appropriate levels.
Because insurance is such an important component of overall risk management and financial planning, be sure to discuss your needs with your advisor during your annual review or at least once during each year.

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As Director of Retirement and Life Planning for Horsesmouth, Elaine Floyd helps advisors better serve their clients by understanding the practical and technical aspects of retirement income planning. A former wirehouse broker, she earned her CFP® designation in 1986.

Amy Buttell earned an accounting certificate from Mercyhurst University in 2009 and has written about insurance, financial planning and risk management for 14 years.

Copyright © 2013 by Horsesmouth, LLC. All Rights Reserved.
License #: 4259979-353740 Reprint Licensee: Ciccarelli Advisory Services, Inc
IMPORTANT NOTICE This reprint is provided exclusively for use by the licensee, including for client education, and is subject to applicable copyright laws. Unauthorized use, reproduction or distribution of this material is a violation of federal law and punishable by civil and criminal penalty. This material is furnished “as is” without warranty of any kind. Its accuracy and completeness is not guaranteed and all warranties expressed or implied are hereby excluded.

The headlines have been telling us over and over again that the U.S. stock market is achieving record highs, and the not-so-subtle implication is that they have nowhere to go but down.  In fact, the “lost decade” of 2000 to 2010 has obscured the fact that, historically, it is pretty common for stocks to achieve record highs.

If you look closely at the accompanying chart, you’ll see that since 1950, the overall trend, until 2000, was a smooth if somewhat boring upward climb from 21.40 in January of 1950 to 55.34 in January of 1960 (more than a 150% gain), to 89.63 in January of 1970, to 102.09 in January 1980, to 339.94 in January of 1990.   Record highs were recorded on a routine basis, and the trend accelerated from 1990 to 2000.  That’s roughly 50 years where the news media would have found nothing remarkable about stocks traveling into uncharted territory.

The pullback associated with the “tech wreck” decline in 2000 and the 2008 market meltdown have turned a relatively smooth ride into the kind of rollercoaster that carries warnings for people with back problems and heart conditions.  Never mind that the markets are up 9,706.42% since 1950; the headlines today tell us that we’re back above the market tops of 2000 and 2007.

History suggests that the steady, moderate growth of the 50 years ending in early 2000 is more normal than what we experienced during the first decade of the 21st century, when we endured two major collapses, the first brought on by rampant speculation in dotcom ventures (and Wall Street’s phony and ultimately punished “research”), the other by Wall Street’s reckless speculation on packaged mortgages.  The ride may never become as smooth as it was in the past century, and it’s certainly possible that the returns won’t be quite as generous.  We don’t know.  But it’s possible that four or five years from now–or 50 or 60–all the incremental market tops will elicit barely a yawn from investors, and won’t command headlines in our newspapers.  Maybe we should prepare by ignoring them today.