Scams that target the elderly, whether by phone, computer or in person, succeed to the tune of billions of dollars a year. But fear and shame often keep victims from seeking the help that their grown children could provide, experts say.
“One of the reasons parents don’t tell us when they may have fallen victim or come close is that they fear [their children will] pack up their home and they’ll lose their independence,” explains Ron Long, head of Wells Fargo’s Elder Client Initiatives Center of Excellence.
To help aging parents protect
themselves, their grown children must
tactfully broach the subject of their
vulnerability. The key is to adopt an
attitude of empathy and non-judgment,
says Amy Nofziger, director of fraud
victim support at AARP, an advocacy
organization for older Americans.
“Always start the conversation with
empathy and compassion, and don’t
be paternalistic,” she advises.
Studies have shown that we become less skeptical and more impulsive as we age, Long says. “The bad guys know that, and they know that’s where the money is,” he says. Scammers relieve elderly Americans of as much as an estimated $36.5 billion annually.
The bad guys also know that open lines of communication between elderly parents and their offspring can make their job a lot harder, says Dan Ludwin, president of wealth management firm Salomon & Ludwin, in Richmond, Va. A few years back, a client’s parents fell for a story that their grandson had been arrested and needed bail money, he says. Over multiple phone calls, the scammer discouraged the elderly couple from notifying the grandson’s parents, supposedly to spare him their opprobrium.
“They were surprised they fell victim to a scam and, in hindsight, they saw the signs, the pressure, the secretive nature of the request,” says Ludwin, noting that the couple sent payments of $1,000 and $1,500 before finally smelling a rat. Ultimately, the couple did notify their son, and they agreed to accept his help in avoiding future scams.
To open lines of communication before trouble has struck, keep things as light as possible. One approach is to use news items as an icebreaker, Nofziger says: “Hey, mom and dad, have you heard about this grandparent scam? It’s where someone pretending to be your grandchild claims to be in trouble.”
Steer the conversation toward role-playing, she advises: “What would you do if happened to you?” Once a dialogue is established, you can bring up other kinds of security concerns.
Be mindful that elderly parents were socialized differently. Having been taught to be polite on the phone, for example, they might hesitate to cut off fast talkers. One solution: Leave by the phone a short “refusal script”—along the lines of “I don’t do business over the phone before I contact my son. Thank you, goodbye.”
Remember that basic technology can be confusing to those who may have already passed middle age by the time cellphones and email had become ubiquitous. The good news is that older people will often defer to their children on technology issues. Offer to make sure their security software is up to date. Show them that you save trusted contacts’ names and photos on your own cellphone, and that you let unidentified callers go to voicemail. They’ll probably want you to help them set up their contacts the same way.
One artifact of the generational divide is that many older people still carry their Social Security card in their wallet. “You can say, ‘That’s not the norm anymore, mom and dad. Social Security cards are a gold mine for scammers,” says Nofziger.
To really get ahead of things, start talking about scammers and fraudsters while your parents are still relatively young and sharp. Every family should agree on when and how the children should start helping more with their parents’ finances, says Long. “And the best way to get to that is have these conversations earlier, rather than in the moment of crisis,” he says.
Naturally, many families will have trouble bridging a trust gap between child and parent. That’s the time to bring in a trusted intermediary, whether it’s an attorney, a religious leader, or an old friend, says Long.
And if parents resist your help, be patient. Accepting care from your children “can be kind of a role reversal,” says Nofziger. “After 18 years, my mom finally will call me now when she gets a suspicious phone call.”
New Year’s is when many people feel motivated to make a savings or financial plan, and research shows that it’s a good time to do so.
A recent survey from Fidelity Investments found that 67% of Americans are considering a New Year’s resolution that relates to their finances. More than half of the 3,012 respondents said they want to save more for goals including retirement.
But success is far from assured. Fidelity says about half the people who made financial resolutions for 2019 failed to keep them.
For those who want to boost the odds of success, behavioral economists have some strategies to consider.
Set retirement goals in January (or on your birthday)
Academic research shows both New Year’s Day and birthdays are good times to initiate change. Because both mark the start of a new year, they help us “wipe the slate clean,” said Katherine Milkman, a professor at the University of Pennsylvania’s Wharton School.
“We rationalize that it was ‘the old me’ who failed, but this year will be different,” Prof. Milkman said. This boosts self-confidence, a key to success.
In a forthcoming study by economists including Prof. Milkman, researchers invited about 8,600 employees to start saving for retirement or increase their contributions. Those prompted around their birthdays saved more over the following eight months than those urged to take action around dates that aren’t generally associated with new beginnings, such as Thanksgiving or Valentine’s Day.
Set specific, realistic goals
People often set themselves up for failure by choosing goals that are too vague or extreme—for example, to “save more” or “retire by 40.”
If a goal requires you to eliminate things you enjoy, you may feel deprived and lose the ability to stick with it, said Dan Egan, managing director of behavioral finance and investing at Betterment LLC.
The key is to make your goals as specific and realistic as possible. For example, “I will increase my savings rate from 5% to 15% in two percentage point increments over each of the next five years.”
Make a detailed plan
The next step is to break your goal down into smaller steps and tackle one at a time.
“Nobody tries to run a marathon on the first day,” said Mr. Egan. “You need a plan to get there.”
Another benefit of this approach: Small wins often “create feelings of success and progress,” said Prof. Milkman.
Someone saving 5% of pay who wants to get to 15% can implement that plan in one step, by enrolling in automatic escalation, a program many 401(k) plans offer that allows individuals to commit to raising their savings rate gradually over time. The increases often coincide with pay raises.
Some goals, such as financial planning, involve numerous steps that may take months to complete. Mr. Egan recommends starting by simply linking your credit card, loan, bank and 401(k) accounts to an aggregation service, such as those maintained by Intuit Inc. ’s Mint or Personal Capital Corp. The next step, he said, is to set monthly calendar reminders to look at that data to gain a better understanding of your spending patterns.
If you decide to hire a financial planner, set aside time to research the type that would work best for you. Options range from an independent adviser to a fully or partially automated service, such as those offered by Betterment and Wealthfront Corp., which often charge less. Hourly planners, including those in the Garret Planning Network, are another option.
Look for a registered investment adviser who will act as a fiduciary, in your best interest. To minimize conflicts, they are typically paid a fee by clients and avoid annuities and other products that offer them sales incentives. (Those with conflicts of interest are required to disclose them in Form ADV, filed with the Securities and Exchange Commission, so check the fine print.)
By contrast, brokers, also known as registered representatives, are allowed to recommend products that pay them the most in commissions and other incentives as long as the product suits the client’s needs. Starting in July, the SEC will require brokers to act in a customer’s best interest. But they won’t always be required to recommend the lowest-cost products, said Barbara Roper director of investor protection at the nonprofit Consumer Federation of America, who said it’s unclear how the SEC will enforce the new standard.
Stress test your plan
Behavioral economists recommend an exercise called mental contrasting, in which people think about a desired outcome and why it matters. (For example, “I am saving 15% a year so I can retire by 65.”)
Then they consider potential obstacles to success, such as an unexpected car repair or the temptations of one-click shopping.
The goal is to brainstorm solutions—such as starting an emergency fund or disabling the one-click feature.
That way, “when we get trapped in a moment of temptation we have thought through how to deal with it,” said Sarah Newcomb, a behavioral economist at Morningstar Inc. “A lot of us decide to make changes but we don’t have strategies in place for when it gets hard.”
Prof. Milkman suggests writing out your plan because research shows people are less likely to break a resolution if it feels like a contract.
Use the behavioral strategies that work for you
Individuals should automate their savings. Many also need to learn to be patient with themselves. “There will be setbacks. They are part of the journey,” said Mr. Egan. “Give yourself credit for successes even if there is some backsliding.”
Here are some other behavioral strategies to consider as you personalize your plan:
1. Make “if-then” plans: Link a cue to a desired action. For example, if your goal is to stop buying coffee, your “if-then” plan might be, “If it is a weekday, I will bring coffee from home, using my favorite ingredients.”
2. Reward yourself for wins: “We are programmed to respond to instant gratification,” said Prof. Milkman. When you hit your monthly savings goal, channel a fraction of those savings—say 10%—into a separate bucket for splurges.
3. Use temptation bundling: Combine a guilty pleasure with something you lack motivation to do. In a 2013 study, Prof. Milkman and two other researchers found participants were more likely to exercise when given the chance to simultaneously listen to popular audio books. “Make it fun rather than resenting it,” she said. The financial equivalent? Pair a treat, such as a glass of wine, with the tedious task of linking your accounts to an aggregation website or app.
4. Use behavior therapy: Identify triggers of bad behavior and substitute alternative rewards. Ms. Newcomb said she used to go to Starbucks around 4 p.m. daily. She stopped when she realized the splurge was less about a desire for caffeine than a need for “a break from the office and some natural beauty.” Now she takes her afternoon break “by a stream in a little park.”
5. Use mental accounting: This involves saving separately for different goals and labeling each pot of money—ideally, with a photo—in a personally meaningful way. (For example, “save for George’s college fund” or “save for my dream beach home in retirement.”) In a 2011 study, households in rural India invited to set aside a portion of pay using two envelopes saved more over 14 weeks than those with just one envelope. Some banks offer a way to subdivide savings.
6. Set occasional high-impact goals: The idea is to push yourself “to see what you are capable of,” said Mr. Egan. With exercise, this may involve high-intensity interval training. With money, the challenge could be to save as much as possible in a month. “It’s easy to have spending creep up a little each month,” he said. “Think of it as recalibrating.”
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So what can investors expect from the 2020s?
Ignore the noise and hold tight
The stock market has had a fabulous ride over the last decade, more than tripling its price.
You might have forgotten that, what with all the years of worry over Brexit, an inverting yield curve, rising interest rates, impeachment and many other scares of the day. In the meantime, stocks have gone on to rise 249 percent (as of market close on Dec. 18), as measured by the Standard & Poor’s 500 Index (.SPX), making it a fantastic decade for investors, if the numbers stay here through the end of the year.
A decade ago the U.S. economy was dealing with the worst economic crisis since the Great Depression. The S&P had seen its worst decade ever – even worse than the depression-era 1930s. But that set up a period of solid gains in the 2010s. And if you fudge the start date a bit, to the market’s low on March 9, 2009, then stocks returned an astronomical 372 percent.
Here’s how the S&P 500 in the 2010s stacks up against its performance in prior decades.
The best ten-year period for stocks was the 1950s, with a total return of nearly 487 percent, including dividends. The 1990s and 1980s weren’t far behind, though, with returns of almost 433 percent and 404 percent, respectively. Stocks finished the 1990s, of course, with a blistering performance, as investors rushed into the dotcom boom.
That dotcom boom soon went bust, however, setting up the miserable returns of the following decade, the 2000s. Start to finish, the S&P 500 lost about nine percent over the decade, which culminated in a massive decline in stocks as part of the global financial crisis.
That poor performance set up a low base for stocks over the most recent decade, and stocks climbed nicely from that base, performing well even though previous decades fared better. A buy-and-hold investor at the start of 2010 could have earned more than a 200 percent return. Of course, investors who purchased at lower prices in 2009 did even better, if they held on.
As strong as the returns for the S&P 500 were over the last decade, investors could have done even better in some individual stocks, including some that were already household names.
Some individual stocks did even better – and some didn’t!
An index’s performance is a weighted average of the stocks in the index. Some stocks perform above that average and others below. By picking a few of the higher-performing stocks, investors can do even better than the index, sometimes fantastically better.
Here are a few of these stellar stocks, each of which was known to the public 10 years ago.
Amazon drastically outperformed the index from 2010-2019.
Even though it was a well-known company in 2010, Amazon stock rose dramatically.
Amazon’s (AMZN) performance was remarkable, and more so because it wasn’t a hidden stock but a company that many Americans already knew. The company grew its e-commerce business quickly over the past decade, expanded its highly profitable web services unit and has now begun its own shipping operation, too. From the start of the decade to now, Amazon delivered returns of about 1,200 percent.
Apple (APPL) went into the decade with a huge hit on its hands, the iPod. In 2007, it released the iPhone, ushering in the smartphone era, and it wasn’t until 2010 that the iPad debuted. It feels like the stock has only gone up in the 2010s.
Like all stocks, Apple has had its ups and downs, but in the last decade it posted extraordinary returns, turning every $100 investment into $1,000.
Apple put up another huge decade of performance from 2010-2019.
Even after years of high performance, Apple stock still soared over the last decade.
Facebook (FB) didn’t debut as a publicly traded company until 2012, and the market didn’t give the company a warm reception. After a first day pop, the stock stumbled, but it was buoyed by a quickly growing business, and shares climbed rapidly. Since the close of its first day the stock has delivered returns of 400 percent, and those who bought in the year after its IPO did even better. Facebook was probably the decade’s highest-profile IPO and one of the most successful.
After a lackluster IPO, Facebook crushed the market in 2012-2019.
The initial headlines on Facebook were dim, but the stock soared after its first year.
While we can point to some notable successes over the last decade, well-known stocks can decline substantially, too. Even those stocks touted for greatness can plummet. A case in point is the ride-sharing company Uber (UBER), one of 2019’s most highly anticipated IPOs.
The stock has been stuck in reverse since its May debut, losing investors 28 percent from its closing day. It’s been burning cash at a fierce rate, and it’s not clear that things will ever turn around. Plus, the company features another hidden risk that might elude many investors.
Uber stumbled after its May 2019 IPO and didn't recover by year-end.
The ride-sharing company has been burning cash at a furious pace, with no end in sight.
The last decade offers some important insights for how investors can profit in the 2020s.
Over the last decade, investors had no end of alleged reasons to sell – rising interest rates, Brexit, a potential return of the financial crisis, and now concerns about impeachment. But history suggests that selling on short-term worries hurts your long-term returns.
As an old Wall Street truism says: “The market climbs a wall of worry.” While short-term concerns may hit stocks, the company’s fundamental performance drives long-term returns.
So it’s valuable to ignore the short-term noise and fear-mongering, especially when they have little or nothing to do with the performance of the business. That’s even more true for an index such as the S&P 500, whose broad diversification limits your exposure to any single company. Over time, the index moves on the health of the U.S. economy, not the latest concern of the day.
Poor performance sets up good performance
It can be tough to hold on to stocks when they decline, but that poor performance often sets up a good performance later. When low expectations are built into a stock price, prices are cheap, and later more enthusiastic investors can bid them higher. That’s easy to see from the poor performance of the 2000s – down 9.1 percent – and the 2010s – up 249 percent.
The market usually reverts to the mean, and good years are followed by a bad year, returning the market to its long-run average, about 10 percent annually over time for the S&P 500. If you earn much more than this over long stretches, then future returns may be lower.
“The next decade could have a reversion back somewhat to the low single digits average, if you look at the historical annualized returns,” says Daniel Milan, managing partner of Cornerstone Financial Services. But he emphasizes that new technological advances helped drive profits last decade and more may be on the way, led by technology such as 5G communications.
But good performance won’t last forever
Low interest rates and soaring corporate profits have helped drive stocks higher, as the Federal Reserve held rates near zero for years. But the Fed may not always be lowering rates, as we’ve seen in the last few years, and company earnings typically decline in a recession. While the decade has seen strong returns, investors need to avoid being complacent.
“Investors should not take away from this that stocks only go up,” says Anthony Denier, CEO of commission-free broker Webull Financial. “Markets and investments move in cycles. Investors should expect this economy to eventually fall into recession – although when is anyone’s guess – and then stocks will fall, and bonds yields will rise.”
Diversification reduces your risk
“Investors should also think about diversifying before it’s too late,” says Dean Vagnozzi, president of A Better Financial Plan, LLC.
Diversification can mean having a mix of different investments. An S&P 500 index fund is a well-diversified mix of stocks, but even a collection of stocks can fluctuate drastically, and it does not include other assets such as bonds, real estate and safe cash accounts such as CDs.
“The most important strategy that an investor should implement over the next 10 years is … being well diversified across sectors in equities, fixed income and real estate,” says Milan.
“If you…research the options for alternative investments that are not subjected to stock market volatility now, you will save yourself the stress and headache of having to make an emotional and impulsive decision when the market does eventually go through a correction,” says Vagnozzi.
Diversification not only limits your downside loss, it can actually increase your returns, too.
Let your time horizon guide you
While stocks usually perform well over long periods, in the short term they can be tremendously volatile. Diversification can help balance your investment risk, but the passage of time can help. The longer your time horizon, the longer you can stick with stocks to let them soar.
“If you need to take from your kids college savings in four years, don’t be as aggressively invested as you would with your retirement savings which you will not need for 10 or more years,” says Daniel Lash, certified financial planner at VLP Financial Advisors.
So be careful if you use stocks to plan for immediate goals – such as the down payment on a house – because the money may not be there when you need it.
“Don’t have expectations for the market, but have a plan to accomplish your goals around your spending and savings, the things you can control,” says Lash.
Those looking to get into the stock market have two broad choices: buy individual stocks or buy a fund. If you’re willing to do the legwork and analyze companies, then you may be able to earn more than you would by buying a fund. But for investors who don’t have specialized knowledge or who simply don’t want to evaluate companies, buying – and importantly, holding – a broadly diversified fund such as an S&P 500 index fund can still deliver excellent returns.
But one of the best lessons from the last decade (and all time) is to stay invested if you want the potential for strong returns. You won’t have the chance to profit from stock if you don’t own any.