Brian and Bo investigate identity theft protection, and credit monitoring industries, as well as provide you with alternative methods to identity security that is available. This week’s episode is a must-listen and a great resource to keep an eye on your credit score, report, and security.

Brian reviews credit monitoring and protection industry while reviewing The Consumer Reports article Don’t get taken guarding your ID. The article points out our stance on these “services” and highlights how easy it is to monitor your credit yourself for free. If you are worried about credit fraud the single best way to protect yourself is through a “credit freeze,” and when you need credit you can “thaw” your credit within 15 minutes. If you are doing all of these things already and want a snapshot of how good you are at protecting your identity IDSafety.net has a quiz that is a great resource.

Brian and Bo also give you resources to access your credit scores from all 3 credit bureaus:

Transunion: www.creditkarma.com
Experian: www.creditsesame.com
Equifax: With certain discover credit cards, discover will print your score on your Equifax monthly statement.

As always, you can download your credit report once per year per bureau through www.annualcreditreport.com. The guys also give you an outlet to protect your security when filing your taxes. The IRS has implemented measures to help safeguard your identity through their IP PIN program.

So it comes as no surprise that the economy is cyclical by nature. There are periods of expansion and there are periods of contraction. What you may not realize is that the nature of being a consumer is also cyclical. Just as the best time to begin investing is during a trough in the economic cycle, the best time to purchase big-ticket items occurs in the trough of a consumer cycle. In the June issues of Consumer Reports’ Money Adviser, the cover story was Best Recession Bargains. The article explains that if your finances are in good shape, now may be the time to make those purchases of big ticket items that you have been putting off. The article walks through buying tips for: televisions, automobiles, travel, digital cameras, homes, major appliances, clothing, cell-phone service, furniture, gas grills, desktop computers, and fitness equipment.

Some highlights to listen for include using online shopping bots (PriceGrabber.com), watch for seasonal sales, determine what and how much you truly need, and make sure you know all costs including ongoing maintenance. Another strategy to save some extra bucks that I LOVE is haggling. But just like dating, this takes a good technique to be successful. Listen for some of these tips:

• Play nice – Don’t demand discounts or give ultimatums. Simply ask, can you work with me?. Go for the ‘kill ’em with kindness’ approach.

• Know the merchandise – Goods with limited shelf lives are more likely to be negotiable.

• Deal for extras – If you can’t get them to come off the price, ask for accessories or waived shipping, delivery or installation.

• Visit when stores are quiet – Salespeople will be able to show you more personal attention when there are less distractions around.

• Speak to authority – If the salesmen isn’t the one who can provide discounts, politely ask to speak with the individual that can.

• Carry cash – Sometimes extra discounts are available if you pay cash because the retailer won’t have to pay a transaction fee to the credit card company.

The second article I found particularly interesting comes from Kiplinger’s Retirement Report. It is titled Fighting Your Broker is an Uphill Battle. This article explains that over the last 12 to 18 months, arbitration and litigation hearings against brokers and money managers have increased. The process isn’t as easy as you may think, however. To win a claim, you must show the broker engaged in some misconduct. Simply picking poor investments won’t win the case. As you listen , I will also share a personal story of a client whom I tried to assist in an arbitration hearing and realized first hand that the process wasn’t as straight forward as I thought it would have been.

To close out the show, I want to remind you  that this recession has taught us many things. The one thing you will notice that I have been harping on is keeping adequate cash reserves. I want to remind you, however, that just because you have cash reserves, you shouldn’t have to necessarily forego all growth. This is what I meant earlier by optimization. I’ve already told you about online savings accounts (FNBOdirect.com or Dollarsavingsdirect.com), but I also think  you should know about online checking accounts. There is a really great website, CheckingFinder.com, that will allow you to search for institutions nearby that offer high yield checking. These accounts pay high rates on balances up to a certain limit set by the institution. When I did a search on my zip code here on the south side of Atlanta, there was one bank 31 miles away that will pay 4.5% on the first $50k and then 1.25% on amounts above $50k. Another institution 33 miles away offers 4.18% on the first $50k and then 1.01% above that. To qualify for these rates you must meet certain requirements that vary by institution. Generally, you must use your debit card 10-15 times per month (this could be for gas, groceries, etc.), receive direct deposits (could be set up to come from your paycheck of even another account at a different institution), and get your statement by email.

Remember, please,  only implement these strategies if they make sense for your specific situation. There is a fine line between optimization and micro-managing. A $1,000 high yield checking account may not be worth the effort.

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The first article I came across that I thought was pretty interesting was from a listener telling me about a Charity Fraud Announcement from the Federal Trade Commission. I find this email especially interesting because I’ve been doing financial planning for some years now so, if you do the math, you will realize that this is the second big recession I’ve been through, the first being from 2000 – 2003. What I’ve noticed is that as the economy suffers, individuals are forced to become creative. This creativity often leads to recovery in the economy. Unfortunately, however,  good people aren’t the only ones  who become creative. It seems like every time there is a hick-up in the economy, a whirl-wind of get-rich-quick schemes and scams pop up. Some are absolutely fraudulent, and some are really just complex multi-level marketing schemes (such as the ones springing up all over my neighborhood). Now I’m not saying that all of these are bad, but it is unique how they become ever more prevalent during down periods in the economy.

The two articles, Avoid Charity Fraud and Supporting the Troops: When Charities solicit Donations on Behalf of Vets and Military Families, highlight some of these ways to avoid becoming a victim of charity fraud:

• Ask for the charity’s name, address, phone number, and written information about its programs.
• Ask whether the person contacting you is a volunteer or a professional fundraiser and how much of your contribution will actually go to the cause you are supporting.
• Check the history of the organization with the office that regulates charities in your state.
• Avoid high pressure pitches. It’s okay to hang up.
• Be weary of a ‘thank you’ for a pledge you don’t remember making.
• Avoid requests for cash.
• Avoid charities that offer to send a courier or overnight delivery service to collect your money.
• Avoid charities that guarantee sweepstakes winnings in exchange for a contribution. According to U.S. law, you never have to give a donation to be eligible to win a sweepstakes.
• Avoid charities that appear to spring up overnight.
• Donate to charities that have a solid track record and history.
• Check out the organization before donating any money. Some phony charities use names, seals, and logos that look or sound like real ones. When in doubt, contact the legitimate charity to find out for sure.
• Ask for a receipt that shows the amount of your contribution and that it is tax deductible.

The second article I came across was from the New York Times and it was titled, Credit Card Industry Aims to Profit From Sterling Payers.  What this article is basically saying to me (a ‘deadbeat’ who uses a cash-back card, doesn’t carry a balance, and grins from ear to ear every time I receive my cash-back check) is that my free-ride may be coming to an end. The article explains that banks are looking to revive annual fees, curtail cash back and other rewards, and also begin charging interest immediately on a purchase instead of allowing a grace period of a few weeks. Edward Yingling of the American Bankers Association was quoted as saying “Those that manage their credit well will in some degree subsidize those that have credit problems”.

I don’t know if I agree with this, however. I have to believe that if my credit card company started charging me interest on my purchases immediately, and I didn’t receive any rewards for using it, then I would probably just use cash every chance I could, and when I needed the convenience of a card, I would use my bank debit card.  It goes on in the article to explain that these banks and credit card companies aren’t charities. They, too, are businesses operating for profit and have shareholders to answer to. The article also shares some interesting statistics. While banks are not required to reveal how much they make from penalty interest rates and fees, Robert Hammer, an industry consultant, noted that the amount of money generated by penalty fees like late charges and exceeding credit limits had increased by about $1 billion annually in recent years and should top $20 billion this year. However, the government stress tests did show that the nation’s top 19 biggest banks will take on $82 billion in credit card losses in the next two years. This could be even worse, though, considering the method for valuing assets for the stress tests.

The final article I wanted to share that was of interest (and when I say interest I also mean that it scares me to death) was an article concerning the finances of Social Security and Medicare. A new study found that Medicare is currently paying out more than it receives, and Social Security will start paying out more in benefits than it collects in taxes in 2016, and the giant trust fund will completely run out by 2037. Medicare is currently slated to be insolvent by 2017. Obviously the reason for the dates being sooner than originally anticipated is the current state of the economy. According to the article, since December of 2007, 5.7 million jobs have been lost and the unemployment rate hit a 25 year high in April of 8.9%. Fewer people working plus more people retiring (i.e. 78 million baby boomers) means less money flowing into the system. So, the way I see it, there is only one real option so solve this problem: whether you are Republican or Democrat, taxes are going up! In the show, I use a piece of research we have made available on the premium member side that details government spending, tax collections, and the federal deficit over the last forty years.

At the very end of the show, I ask for your opinions on an in depth FairTax show as well as general interest in the P90X workout routine. I do this podcast for you, my loyal listeners, so I am always interested to hear your thoughts!

As you listen to the show, I will touch on some of the recurring questions I receive from listeners. One that I’ve seen a lot since the ‘Protecting Yourself from Fraud’ podcast is what are my true feelings on Social Security? Well, I really do believe it is the world’s biggest Ponzi scheme, and I even share a very personal experience that will help you understand why I feel this way.

Another question I felt was worthy of some attention was whether it really makes sense to have a 30 year mortgage right now even if a 15 year pay-off is the goal. I do believe this is the best practice because it provides you with a little cushion to work with should any special circumstance arise. The point made by a listener was that most people are not disciplined enough to carry a 30 year note but pay it off in 15 years. In most cases I would agree. However, you (my listeners) are the cream of the crop. You guys are going beyond common sense and are actively seeking ways to make better financial decisions and get your financial house in order. Because of this, I really do feel like my listeners, those who are willing to listen to a financial podcast, are disciplined enough to pay off a 30 year mortgage in only 15 years.

Many people have asked me, considering my accounting background, how I feel about all of the politicians in the headlines who have not been paying their taxes. To answer simply, I feel the same way about them as I do about anyone else who doesn’t pay taxes: they are breaking the law. I also find it hard to believe that they ‘didn’t know’ they weren’t paying. I think a more realistic response would be that they did not think they would ever get caught. As you listen to the show, I will explain why they thought this and how they were almost right about it.

Finally, to wrap up the show, I share some of my thoughts on the current stimulus plan and weaknesses I feel will have to be resolved if we really want to get out of this economic downturn. I go on to explain why bipartisan cooperation will be absolutely necessary for this stimulus package to have an impact.

If you have not listened to the Year of the ‘Re’ podcast, make sure you do. These concepts are going to be very important going forward considering what the capital markets could potentially do as well as what interest rates may do in the future.

As you probably know by now, I’ve been managing money for about 13 years. One of the hardest things about being a financial planner, especially one held to a fiduciary standard, is constantly dealing with the too good to be true scams out there. I’ve said it before and I will say it again, MOST TIMES if an investment or a product seems too good to be true, then it probably is. This past year has been a perfect example. In 2008, the S&P 500 lost 38.5%. Had you been involved in the Madoff Ponzi scheme, it is very probable you would believe your portfolio was up 8%-12%. How could this be so? It COULDN’T! Please don’t get me wrong, it is possible for individuals to have some good years picking stocks, and it is possible in 2008 there were a handful of stocks that returned 12%. What I find nearly impossible is that a properly allocated and well-diversified portfolio could return 12% in a year the market returned -38.5%. So what was leading these individuals to believe they were making money? Uncle Bernie was telling them so! There was no evidence nor proof of any of these returns. Individuals couldn’t go to Yahoo! Finance and look up the values of their holdings. Madoff held his client assets, managed them, and priced them, too. See the conflicts of interest? Investment performance can look better if the prices reported to clients are manipulated, which is allegedly how Madoff showed winning year after winning year despite the market turmoil.

While being negative is never a good thing, it is possible to limit the amount of volatility you experience through asset allocation and diversification. It is hard for individuals to brag, however, about -20% when they go to a Christmas or New Years party and hear one of their friends made 10% in a -38.5% year. Realistically, though, being down 18% less than the broad markets is a significant achievement.  Another scary aspect of this situation is the fact that some advisers fell prey to this Ponzi scheme. They would entrust their clients’ assets to someone like Bernard Madoff because they genuinely believed they were providing consistent out sized returns. These advisers may not have been stealing or cheating their clients out of money, but they were definitely not practicing due diligence to verify that these returns were legitimate.

As you listen to the podcast you’ll hear the story of a fellow NAPFA adviser out on the west coast who shares his encounter with a Ponzi scheme during the last bear market. I go on to provide you with three tips on how to avoid letting yourself get caught up in a similar scheme or fraud. I finish up by sharing with you some of the exciting changes the Money-Guy show will be making in 2009. I have received your feedback and I am accepting the challenge to kick it up a notch. I hope you had an enjoyable holiday season and I look forward to restoring order and going beyond common sense in 2009!