Elusive Wealth

Get Your Ducks in a Row

As a follow on to Tom’s post about security, let’s look again at the weakest link in your security – You… and the little scraps of paper that contain your user names and passwords.

As noted earlier in this forum, accumulating wealth can be quite simple: buy a lottery ticket, get lucky, voila! you’re wealthy. But even with that simple, albeit  unlikely scheme, you still have to remember where you stored the lottery ticket.

Using Tom’s ( and Smith-Barney’s)  “old fashioned way” of accumulating wealth takes more time, patience and a lot more remembering.  You have to remember more than just user names and passwords.  There are  account numbers, safe combinations, pin numbers, life insurance policies, spouse’s SSN, etc., ad nauseum, ad infinitum.  Now, if you’re twenty-something, have only a few accounts spread around and most of your brain cells are still in tact, you’re thinking “How bad can it be?”  However, if,  like me, you’re a (way) bit older and haven’t  organized this information, you’re most likely rocking in the fetal position, hoping your  memory will return.

Of course, you can organize data on a sheet of paper, put it in a drawer and like the lottery ticket simply remember where it is so you can constantly keep it up to date.  You just have to hope your 7 year old daughter doesn’t take it to school for financial “show and tell” or the new puppy doesn’t rearrange a few figures when you forget to put it back in the drawer (the paper, not the puppy!).

A better solution is a simple and, preferably secure, database.  There are several solutions out there ranging from cheap to free.  Unless you’re reading this article at the library (you’ll need your own computer), the cheapest digital solution is a text file or spreadsheet with a few columns for description, user name, password, URL and account number(s). Although I would contend, it’s better than nothing, this solution has some serious security issues and is not as easy to use as a dedicated program.

The database I have used for the past 5 years is Passwords Plus.  It’s under $30, is extremely easy to use and syncs with any device running the Palm OS.  This last feature saved my butt a couple of years ago when my wife and I, while vacationing in Maine, discovered the rustic little cabin (read “hellhole”) we were staying in didn’t take credit cards.  Because my PDA  contained my checking account number, we were able to quickly secure cash at the local bank without resorting to masks.

KeePass, mentioned in Tom’s post,  is another program that I tried recently just for comparison.  It’s friendliest feature is that it’s free!  It also appears to have another layer of protection that Passwords Plus doesn’t have, that being a “disk key” that you generate yourself.  So, if super security is one of your requirements, it may be the better choice.  Also, for you Mozilla Firefox users (like myself), KeePass allows you to import any usernames and passwords you’ve captured in your browser.  However, I think I will still stick with Passwords Plus just because it’s so darned easy to use.

In conclusion, there are several other similar solutions out there, but it’s not so important which one you use as that you organize your important data…now!   If you’re currently using Passwords Plus, KeePass or another similar program, let us know; we’d love to hear from you.

Of course scammers will stop at nothing to try to separate you from your hard earned money. Today I received an e-mail that made it through my spam filters that tried to get me to click into their site — who knows what it does once it gets there. The e-mail had a number of clues on it though that helped identify it as a scam.

Below is an image of portions of the e-mail:

Paypal Scam E-Mail

One clue is that the To: field had nothing in it. So while the e-mail was sent to me, they didn’t directly identify my account in the to field.  Most people don’t display the to field in their e-mail program, so that is not a dead giveway. Next, take a look at the product number. Usually PayPal e-mails identify the source of the transaction, which in this case it did not explicitly, although later in the e-mail it displayed someone’s eBay user ID. Since the product number looks a lot like an eBay number, I checked that out and of course found no product listed there.

Another clue is in the following section:

PayPal Scam E-mail Section 2

Here the name of the eBay seller supposedly is John Deprimo, but shortly after that there is an important note indicating that Cheryl Blake has an unconfirmed address.

But the full giveaway is really the links — and usually that is the case. For example, there are three links in the e-mail. One is to an e-mail address. One actually goes to PayPal. And then there is the Dispute Transaction link (see the first image in the post). If you hover over this link in Outlook (and in most e-mail web clients worth their salt) the actual target of the link is show.  In this case it is not PayPal, but some URL to “sytes.net.”  And even though it says encrypted link, it is not — instead it all goes across http unencrypted.

So for many this may be old news to you. But it happens every day when someone gets taken by something like this. Use caution and review all of the material in an e-mail. Go to the site directly instead of through the e-mail if you are suspicious. And for PayPal in particular, consider using the electronic security keys that require that you type in a number in addition to your password for logging into your account.

The Mint.com and On-Line Account Aggregator post has been a popular post. Many people are concerned about identify theft, and want to know how to protect themselves. We are going to address some of the ways to keep your on-line accounts safe here. The reality is that it is difficult to always keep track of where your account information is going. With Mint.com using Yodlee, Geezeo using CashEdge, and Quicken being somewhat of a black box, it is understandable that people are concerned.

As we discussed in the previous post, I have am confidence that Yodlee, CashEdge, Mint and Geezeo have a very high level of security to protect your information. As an individual, you are more at risk from phishing or having your own computer compromised whether by virus, trojan horse, or theft.  Keep in mind though that there is significantly more incentive for someone to compromise the financial websites security than there is for someone to steal just your individual information. Regardless of whether you choose to use an account aggregator, or simply log on to your financial institution’s web site periodically, it is a good idea to put some basic protections in place.

So what are some of the ways that you can protect yourself from all of these threats?

Check Your Account Statements Often

Staying Safe On-line

First and foremost it is important to keep an eye on transactions in your accounts. It seems logical to check bank accounts and credit card statements frequently. But you also need to check brokerage accounts and retirement accounts frequently. With brokerages and retirement accounts, you have no protection from the maintainer of the account if someone were to drain the accounts. Your only real protection is to detect that it is happening quickly and take action before a distribution can be made.

Some financial institutions, of course, have protections on what happens when the address on the account gets changed. They may notify you via e-mail or regular mail if this happens. This helps in the event that a thief attempts to change the address before requesting a distribution. But this protection is inconsistent across different companies.

When you check your accounts, you are really just doing a quick scan to make sure there are no unexpected distributions or transactions. This is a case where account aggregators can actually improve your security. With aggregators you only need to look in one place to view the transactions.

How often should you check your accounts?  Generally you should check them within the window of protection. For instance, credit cards usually give you the most protection from fraudulent activity. Visa and Mastercard Debit Cards carry similar protection to credit cards, but only if you sign for the purchase as opposed to using your PIN.  But with brokerages and retirement accounts you have very little time to react.

My recommendation is that you check your accounts at least every three days to provide enough coverage for any account type.

Use Passwords Wisely

Password safety is very important, but it is easy to get into a system where you use the same password for every account or most accounts. For the ultra paranoid, the only real way to be safe here is to use a different password for every account. That is probably a bit overkill, but I would recommend protecting certain accounts with a strong unique password. For example, your primary bank account with the majority of your cash should be well protected. Some of your lessor accounts like the account aggregator, where you cannot move money around, may have a less strict password.

Here are some of the steps you can take to improve your password usage:

• Remembering unique and strong passwords is always a challenge. You have to make a choice whether you want fewer passwords and you want to memorize them, or whether you want to store them somewhere.
• If you choose to memorize them, a good tip is to use the first letter in each word of a well known phrase. Then you can replace some letters with numbers or capital letters to improve the strength.
• My personal choice is to store them using Keepass.  I have been using the 2.x version (don’t let the beta designation scare you, it is a very stable utility). There is certainly a risk if your Keepass file is stolen, so keep the password to it strong — and make sure you protect the file as much as possible.  Keepass can generate very strong passwords, and make it easy for you to quickly find the unique password for any site.
• Create passwords that are at least 8 characters in length and contain both lower case and upper case letters along with some numbers.  An 8 character password with just lower case letters in it takes only about 5 hours to break. Adding some alternate case letters and numbers into the password increases that time to 25 days.
• Change your passwords periodically, around once every two years if there are no breaches on your accounts.  If one of your accounts is breached, change all of your passwords as soon as possible. Again this is an area where Keepass can help keep track of the passwords.

Freeze Your Credit

I have not made it a secret that I think freezing your credit is one of the best ways to protect yourself.  There are some institutions that still use a Social Security as a user ID. Thankfully these are dwindling.  Although it won’t protect the specific account, freezing your credit will help protect your identity should a site that uses or stores your social security number be compromised.

Protect Your Computer

A complete discussion of appropriate ways to protect your computer and your home network is beyond the scope of this article, though I intend to cover it in the future. In the meantime, here are some high level tips for protecting your computer:

• Always use a router with a firewall for a home connection to the Internet
• For on the road, make sure a software firewall is installed
• Make sure you have up to date antivirus and spyware software
• Also keep the operating system updated, preferably by using the auto update feature
• If you have more than one computer, consider using aggregators or Quicken on the computer that is not used for day to day web surfing.  The computer you use for average daily use is where you are more likely to download and install things into the browser that could compromise your system.

For the Ultra Paranoid

If you really don’t like the idea of using the on-line account aggregators, you can always use Quicken or GNUCash to keep a view on your accounts. However if you are this concerned, I recommend downloading your transactions manually by logging into each site and downloading them from there. This way your credentials are generally kept between you and the financial institution (unless the financial institution itself uses Yodlee or CashEdge).

If want to use an on-line aggregator, Wesabe appears to be the safest of them all with its options to manually upload account data and a FireFox plugin to make that process easier. I am impressed with the flexibility of Wesabe’s security and flexibility — they recognize that not everyone wants to send their credentials to a central location. Also this manual approach and the FireFox plugin both work with ING Direct which has frequently caused problems with other on-line aggregators that don’t allow manual uploads.  Of course, this approach to uploading account information is less convenient than having the aggregator pull account information directly.

Conclusion

How safe you are with on-line banking really depends on the degree to which you do all of these things. If you are dilligent about checking your accounts, but don’t pay as much attention to your passwords or your home computer safety, then work to improve in those areas even if it isn’t an immediate change. The bottom line is that if you follow the practices outlined above regarding watching your accounts, using strong passwords, and keeping your computers safe, you should be able to use Quicken, GNUCash, Mint.com, or Geezeo with enough confidence.

So we have had one guide on retirement investment plans, which is available here. But knowing what to invest in is a different story. Now before I get into this, I will admit I am not a finance guru who will make you instantly rich (then again, no one is that much of a guru).  But I can outline my plan, which I believe is a realistic and valuable plan for most people who have been consistently saving over time. There are certainly a lot of variables in investing, and we cannot cover them all here. But I will try to cover the basics that should keep your retirement portfolio growing in the long term.

This article is the introduction to the series.  When we talk about retirement, there are a couple of factors that are important to understand:

1. Retirement does not just mean “quit working.”  On this site it really means finding financial freedom to do what you want to do. That could be reduced or no work hours. Or it could mean starting a business, volunteering, or opening a daycare for grandchildren.  Retirement is just a convenient word for that, but financial independence is the real goal.
2. Reality matters here. If you do not have enough money already saved and invested to be financially independent with a portfolio growth of 6 – 10% annually over ten years, then you won’t be done in ten years.

Before we get started on investing, let’s do some pre-work. Specifically we need to determine the following:

• Are you debt free or nearly debt free?
• What is your risk tolerance?
• How much money do you need to be financially independent?

Are you debt free or nearly debt free?

With 10 years left to go before retirement, you should be on your way to being debt free with the exception of a mortgage. This isn’t easy, and it isn’t reality for everyone. However, it is where you need to start.  Debt quickly cancels income, which hurts your ability to accumulate wealth. Debt represents risk to you. Paying off debt gives you a guaranteed return matching your interest rate (unless the interest is deductible for you). Aside from overextending yourself and not having cash on hand (an emergency fund), there is little risk to paying off debt.

Some people want to compare the interest rate with the return on investments they could have.  Usually they forget risk in that equation.  For example, if you have a home equity loan at 8% from rates before the housing market crash, payments to that loan “earn” 8% while the stock market jumps up and down.

But really the bottom line is that you cannot feel financially independent with significant debt, and debt makes getting there that much more difficult. A mortgage is the only debt that you should not pay off before investing, since the home tied to the mortgage will gain value over time.

What is your risk tolerance?

This is a huge factor in deciding what to invest in. Many people moved happily along with their 401(k)’s until the 2001 tech crash and the latest recession turned them into “201(k)’s”.  If you have a low tolerance for risk, your investments need to reflect that. However, the sobering truth is that if you tolerate no risk in your portfolio, you will get little to no growth relative to inflation. Your entire contributions will need to support your financial freedom. A lot of people have moved their retirement investments into cash and conservative investments because of low risk tolerance. No one gets wealthy by investing without risk. Whether that risk is by investing time and energy into a new business, focusing intensely on your career, or putting money in the stock market.

Let’s say you are open to risk. Is there such a thing as too risky?  There absolutely is. Bernie Madoff and Enron have shown us this. No one person, no one stock should have all of your money, ever! They key is to spread the risk across areas that you are comfortable in.

So pick where you are at with one of the following (this will be important in future editions of this series):

• Conservative – You don’t ride roller coasters, and you tremor in fear at the thought of your retirement investments looking like a roller coaster.
• Moderate – You enjoy the thrill rides and roller coasters, but only on a few vacation weekends out of the year. You aren’t willing to put half of your money “at risk.”
• Aggressive – You realize what goes up can and will come down, you don’t read the news or you disregard the news, and you believe in the economic machine of our global economy

How much money do you need to retire / be financially independent?

This is not as difficult a question as it seems. Though you can save more to be comfortable and to reduce risk, the simple answer is that you need enough money so that the earnings meet or exceed the income of your “day job”. You can get buy with a bit less if you have no debt at all and most of your income is going to increasing your savings. A common suggestion is that you be able to replace 80% of your pre-retirement income. My suggestion is aim for 100% and re-evaluate every 5 years. If at that point you can replace 80% or more and are comfortable with that amount (for the rest of your life) then you are set.

Types of Investments

We are almost at a point where we can start looking at investments. When we talk about investing, while keeping in mind your risk tolerance, we must identify the key requirements of any investment that you make:

• You must understand the investment. You don’t have to understand it enough to run a mutual fund, for example. But you must understand what it invests in, how it grows, how the management company makes its money, and how the financial adviser that suggested it makes his/her money.
• You must accept volatility. Only a bank account, money market account, or a CD is going to have a guaranteed or nearly guaranteed rate of return.  Assuming you decided that your risk tolerance is at least enough to allow some growth over inflation, you will have to accept volatility in the market of whatever the investment is.

There are many people who are quite savvy about investing and meet both of these requirements hands down. This article series  is not really intended for that audience — those folks already know how to make money in the market, likely in both down and up markets. If you like your ETFs, your hedge funds, your variable annuities, and your gold, you won’t like my plan.  But if you are like the majority of people out there, you have a cursory knowledge of most investments and you do not want to become an expert in many different investments. So it really comes down to just a few investment types that I would recommend:

• A U.S. Market Index Fund
• An emerging market index fund (foreign markets like Brazil, China, India)
• Real Estate (either a Real Estate Investment Trust, REIT, or renting out property)
• Guaranteed fund, CDs, Money Markets, and Savings Accounts

Whoa!  I left a lot off of the list, right?  I don’t believe so. The reality is that investments beyond this group get more difficult to understand and manage. As we get into the remaining articles in this series, we will cover these investment types in more detail.If you wish to get more fancy than these options you certainly can. But my plan, and my recommendation to anyone, for the most part sticks within these categories.  I will describe later in the series some ideas on how to get a bit more aggressive, or how to “try out” other investments within your retirement portfolio. But as we cover this series the biggest question will become: what kind of mix of investments do you need?  This all comes down to your risk tolerance and the years you have left until financial independence / retirement. And that is why I am covering these topics in stages. So keep an eye out for the next article in the series!

This site being Elusive Wealth, I felt it important to cover some of the various ways to become wealthy. Certain ways may be rather unorthodox, but perhaps that means they are the road less traveled and as a result there is more opportunity in them!  Or maybe it means that a particular approach is really harder than it seems. When its all said in done, maybe you won’t have learned much from this post — but hopefully it is fun nonetheless

So here we go…

1) Win the Lottery!

The upside of this approach is simply outstanding! Basically being handed millions of dollars for almost no work at all, how much better can it get? Some lotteries get into the hundreds of millions.  If you are considering this route, the basic approach to achieving your dreams is to go to a store, typically with a “Quick” “E” and “Mart” somewhere in the name. Once there, ask the person behind the counter for a ticket and hand them money.

There is a lot about the upside, but are there any drawbacks to this approach to financial freedom?  Well a few to keep in mind:

• You have to pick the winning numbers for the big lotteries. It turns out they don’t just give you a check.
• If you win the money, you have to do some math to figure out if you should take the lump sum or receive money over many years.
• You might have to share if someone else wins! Yuck…
• Things don’t always turn out well for the winners. Many times they end up worse off after winning than before. Maybe it was all about the experience!

Oh and one more thing… The chance that you become wealthy with this approach is somewhere around one in 195,249,054.

So for winning the lottery, Elusive Wealth says:

Don’t play the lottery unless you are also equally willing to set the dollar that would pay for the ticket on fire.

2) Sue Someone into Oblivion!

So winning the lottery isn’t for you, you need other options. Another way to score some fast cash is to sue someone.  You can either take the “easy” way by falling on someone’s sidewalk, suing them, and hoping they have a lucrative umbrella policy. Or you could go the more ethical route of accidentally spilling hot coffee on yourself and bringing litigation against McDonalds for not stopping it somehow.  Yes, this can be quite an attractive approach to wealth building!  However, with this there are also a few caveats:

• The odds of winning a baseless lawsuit probably are not much better than winning the lottery.  I couldn’t find any good statistics on this, I am sure it depends on the lawyers and the particular case.
• Some lawsuits may require actual physical injury before they can seriously be considered.
• If you are considering this, have you ever heard of ethics?

Well, you can also consider a combo play by actually suing the lottery.  This especially comes in handy if you play an instant lottery game where the last winning ticket was already played somewhere.

Elusive Wealth says:

Stick to suing only when you have a legitimate gripe that seriously caused a financial loss.  If that is the case though, go for it!

3) Get a Scam Named After You

Financially this one may rate above both suing someone and winning the lottery, if you have got what it takes.  Once you get a scam named after you, you know you have it made!  Madoff, Ponzi, and Stanford (Group) all know what I am talking about. Not only does this path to wealth come with riches, it is matched equally by fame!  Unfortunately there are some downsides:

• You can’t actually get the scam named unless you get caught.
• This is a touch less ethical than suing someone for no reason.

Elusive Wealth says:

Don’t even try scamming, unless you can make the scam both legal and official sounding, like “credit default swaps.”

4) Get a Job, Save Your Money

This option may look a bit out of place on this list, because it is the only one that results in actual, legitimate earned wealth. However, before I encourage anyone to go this route, I have to honestly lay out all of the downsides:

• To get wealthy with this approach, you might just need an education. The good news is, this isn’t always true. In fact many people do quite well without a college degree.
• To get a job, you have to apply for them and compete for them.
• Once you have a job you have to work.
• Saving money means not spending some of it.

Seems like getting a job has as many negatives of anything else on this list! Maybe it is not the best way to go. But consider this: people have done amazing things with the U.S. average household salary ($50,000) and even less. The truth is that by staying away from debt and making good choices, you stand a better chance of getting wealthy this way than any of the above options. Sure there can be some serious road bumps along the way, especially health issues and healthcare. If you think it can’t happen though, then that may be a major part of the problem. This IS how most people become wealthy.

Elusive Wealth says:

This is really the only option worth considering… what did you expect?