3 Things 4-11
Although MAS is a financial services company, not everything published herein will be about numbers or investing. But no matter the topic, we hope for three things: 1) That you find the time you spend engaged worthwhile. 2) That you’ll reach out to us for help in any of our areas of expertise if something we discuss creates an urging in you to do so. 3) That you’ll share this with somebody new each time you read it.
Credit Protection In The Online Age
We’re all susceptible to identity theft but those of us who trade with our credit cards over the internet, or even in person, are even more prone to being victimized. In light of this, the credit reporting agencies are reminding us that they offer various ways to help us protect our identities from criminals. The two most common are credit freezes and fraud alerts.
If you never intend to apply for any type of financial credit or use a service (like a utility company) that would require a credit check, then perhaps you should freeze your credit. Any attempt thereafter to use your social security number to apply for credit would be denied on the basis of that freeze. That would be the case until you had your credit unfrozen.
But freezing credit is impractical for many of us so adding a fraud alert to your credit file makes more sense in most cases. A fraud alert asks any business seeking your credit report to contact you to confirm your identity before granting credit in your name. These could include:
Car insurance companies
Car rental agencies
Actual victims of fraud can ask for an extended fraud alert, which stays on your file for seven years unless you have it removed sooner, while those of us in fraud-prevention mode should opt for a temporary fraud alert, which lasts for one year but can be renewed. Yes, it has gotten much easier to buy anything your heart desires with just a few clicks. But it has also gotten much easier for unscrupulous individuals to take advantage of us using the same methods. Adding a fraud alert is a no-brainer. Visit Experian here and get it done.
Thing Two Is The Stock Market Overvalued? According to Kirk Spano, who writes for Seeking Alpha: “The S&P 500 is overvalued by every valuation metric measured…and…while the market can remain irrational a long time, it cannot sustain record valuations forever...” A look at one of the most traditional valuation metrics, the P/E ratio for the S&P 500, suggests that Mr. Spano is at least right on that score. Before looking at the details, a definition of terms is in order. Simply put, the P/E ratio calculates how long it would take, in theory, and in a company that returned all its profits each year to its investors, for a shareholder to recoup his initial investment. In a simple example, assume a person buys 1 share of stock for $100 in a company that earns $10 per year. The P/E ratio of 10 for that company (the $100 price divided by the $10 annual profit per year) would suggest that it would take 10 years for that person to recoup their initial investment. The historical average P/E ratio is around 16 (years) while the actual ratio today is around 36 (years). That is over twice the average. The question is, why? One answer (and we think a very good one) comes from the writers at currentmarketvaluation.com who wrote an article that says in part: “…The proverbial elephant in the room here is the bond market, expressed as interest rates. Very generally speaking, bonds represent a lower-risk asset as an alternative to equity (stock) markets, and the two have a highly interdependent relationship. The 50,000ft overview on interest rates is as follows: When interest rates are high, bonds pay a high return to investors, which lowers demand (and prices) of the riskier equities. Additionally, higher interest rates means it's more expensive for businesses to borrow money, making it harder to borrow cash as a way to finance growth. Which is to say any business that takes on debt will face relatively higher interest payments, and therefore less profits. And again, less profits means lower stock prices. The corollary to all this is also true. Low interest rates means bonds pay less to investors, which lowers demand for them, which raises stock prices in relation to bonds. Low-interest rates make it easy for corporations to borrow cash cheaply to finance growth. Corporate interest payments will be low, making profits high. This is all to say, if interest rates are high, stocks go down. If interest rates are low, stocks go up…” We have been living in the corollary scenario, with historically low-interest rates, for a historically long time. Stock prices are reflective of that. As interest rates rise, the thinking is that stock prices will fall. How fast and how far are not knowable but the volatility that we’ve seen recently will likely be with us for a sustained period. Discernment, patience, and a long-term outlook are definitely the order of the day. If you don’t have all three of those, you might consider going to cash or seeking professional guidance.
Thing Three Just A Thought "The only good is knowledge, and the only evil is ignorance." - Herodotus