Politicians Break the Very Laws they Write

Congress has access to a great deal of non-public corporate information due to their regulatory powers.  In 2012, a story broke that uncovered many politicians were using that classified information to buy stock before news came out.  For the rest of us, that is called insider trading and something that leads to jail time.  For politicians, it is just another day in Congress.  Believe it or not, there was nothing that said it was illegal for politicians to benefit from non-public information (better known as insider trading). 

Once new got out, the politicians quickly passed the Stock Act which was designed to curb insider trading by lawmakers and their staff.  Said another way the politicians were caught and to divert attention quickly passed a law to put an end to the legal/illegal activity.

It didn’t quite work.  The SEC wanted to know more and launched an investigation into a Medicare law where politicians and hedge funds made hefty profits.   So, they made an inquiry to get records.  

The politicians quickly blocked that inquiry claiming that they are “constitutionally protected” due to the nature of their work. 

Now, for whatever reason politicians could legally trade using insider information prior to the stock act being passed.  However, the involvement of hedge funds on the same information is illegal plain and simple.  The SEC has every right to see those records since there is reason to believe that politicians did break the law.  

It is amazing that politicians can live above the law due to the office that they serve. It is ironic that they are protected from investigation of breaking laws they themselves actually wrote.  It is not difficult to see why politicians have record low approval ratings as low as 10%.  

Is the Stock Market Crashing and We Just Don’t Know It?

Certainly you would know when the stock market was crashing.   Obviously, at least through today, it isn’t crashing. However, retail investors are certainly acting like it.

Trimtabs.com reported this week that investors sold 35 billion dollars worth of stocks and mutual funds in the month of April. That statistic by itself means very little until compare it to the last time it happened. You would have to go back to the heart of the financial crisis when the American Financial System was burning to see when investors sold that many billions of securities. The last time investors sold like this was October 2008.

September and October were the two biggest months of the crisis. Selling could be justified. However, today? This leads me to 3 conclusions.

1)     Positive sign for the stock market – Investors as a group are notorious for doing the wrong thing at the wrong time. So, if everyone is selling, could this be a buying opportunity?

2)     A change in character – Investors held onto their investments for the most part during the 2000-2002 and 2007-2009 bear markets. Ever investor is taught to buy and hold. Could we be seeing the anti-buy and hold movement starting to play out?

3)   The stock market is definitely not in a bubble – There has been speculation that the stock market is in a bubble. Investors don’t behave this way in a bubble.

Whatever the reason, something doesn’t add up. This is just another statistic on a long list of things that don’t add up.

An Easy Way to Determine the Risk Level of Your Mutual Fund

With the market gyrating all over the place, it is time to think about risk.  If the market goes into a large decline, how will your retirement savings hold up?

There are a lot of technical ways to measure risk.  I won’t even attempt to bore you with the technical aspects of risk measurement.  However, there is one risk measurement that ANYONE can use and it is easy to understand. 

It is the concept of Beta.  Now before you give up on me and go do something else, give this information a try.  This is super easy to understand. 

This is a very global explanation.  

If the stock market goes down 40% and your mutual fund goes down 40%, then your mutual fund is taking 100% of the risk of the stock market. If that is the case, then your mutual fund has a beta of 1.  If the stock market goes down 40%, and your mutual fund goes down 20%, then your mutual fund probably has a beta of less than 1.  If the stock market goes down 40% and your mutual fund goes down more than 40%, then the Beta of your fund is probably greater than 1%.  

A Beta of 1= same risk as the stock market

A Beta of less than 1 – less risk than the stock market

A Beta of more than 1 – More risk than the stock market

(See disclaimer at the end)

So, if you want to take risk, you might consider lower Beta funds. 

Let me give you an actual example of a higher Beta fund versus a lower Beta fund.  I want give the name of the funds.  However, I will show you the results. 

Fund A has a Beta of 1.  It is taking the identical risk of the stock market.  Fund B has a Beta of .69.  It is taking less risk than the S&P 500.  Look at Fund A versus Fund B during the financial crisis. 

                           Fund A                 Fund B

End of 2007         $100,000             $100,000

End of 2008            62,980                 83,400

End of 2009            79,663                102,190

End of 2010           91,540                 113,727

End of 2011            93,343                116,490

As you can see fund B which took less risk, made up the losses by the end of 2009 while it took Fund A until 2012 to be back above 100,000.  Now this relationship of fund performance to Beta isn’t guaranteed to work this way every time.  However, I think that is a good way to manage risk.

How do you find the Beta for a particular fund?  You can look at www.morningstar.com.  However, they don’t publish the Beta for every fund.  Your best bet is to call the fund company directly to get that information. 

If you have a particular question about a fund, you are more than welcome to send it to bob@prudentmoney.com.   Also, to find out about your Prudent Money DNA and determine your risk level, take the free risk assessment and I will send you back an analysis.  Click Here for more information

DISCLAIMER – This is in no way an attempt to give advice on fund selection.  This is simply an introduction to a risk measuring concept.  Published Beta’s for mutual funds are not guaranteed to be accurate. 

Prudent Money Mailbox – My Card Was Stolen!

Dear Bob

My credit card number was stolen.  The Card Company detected fraud and contacted me.  They are sending me new cards with a new number.  My card was not lost, so I’m unsure how the number was stolen, but it was used to spend $2K at a local grocery store.   They told me they will investigate and let me know results in about 90 days.   Interesting….and a pain since I have a zillion auto pays….  

I just read your identity theft article, so thought I’d let you know.


This is so common place now.  It was probably stolen one of two ways.  First, it could have been compromised in a number of security breaches that occurred last year. Second, it could have been compromised through a skimmer attached to where you would scan your credit card.  The main thing is that you are using a credit card and not a debit card.  It is better to let a thief compromise a credit line then to let a thief get into your bank account.  That is key.  The good news is that they will send your new card with the new security chip technology.  That is something that will help slow down the threat. 

How the Great Recession Has Affected the Millennial Generation

A recent study from www.moneyunder30.com shows some interesting results in how the great recession might have shaped their situation.  The study survived now 21 -29 year olds.  During the Great Recession/Financial Crisis that age range would have been 15 – 23. There have been some positive and then not so positive effects. 

Positive Impact- Savings

62% of Americans on average are saving anything for retirement.  86% of Millennial ‘s are saving.  Millennials’ saw how the Great Recession exposed the negative impact of poor spending/saving habits of their parents.  

Amount of money saved on average for retirement in America is $35,000. The average amount of money saved by Millennials is $7,453,  Considering the young age group versus a broad band of ages, I would say that is a better than the average of all ages.

The average family savings account in America has a balance of $3,800.  The average savings account balance for the Millennials is almost twice that at $6,713.  Once again, this generation saw the negative impact that limited liquid savings had on their parents. 

Negative Impact-Debt

The Average Credit Card Debt in America is $2,200.  The average credit card debt for the Millennials is a little higher at $3,718.  However, that amount is down from a high of $3,993 in 2014.  Millennials have had to rely on credit a little more due to the Great Recession.  However, they are showing responsibility in the fact it is decreasing rather than increasing.  

47% of Millennials have an average student loan debt of $36,584 which is up from 2014.  Leading up to the Great Recession, there was a good percentage of the millennial generation that were near college.  Many families lost a good percentage of money saved for college during the great Recession. Then the Government stepped and socialized the college student loan business taking it from private industry and making it mostly government run. Of course, as a result, borrowing money became easy to do.

Negative Impact- Employment

32% of Millennials have a job but it’s not related to their desired career or field of study.  25% work more than job to get by.  Another negative from the great Recession is the employment markets which have improved but far from where they were at one time.  The financial crisis completely changed employment in America at a time when college graduates would be looking for a job.

All in all, the millennials have had to endure a much tougher financial situation because of the Great Recession.  However, as far as financial habits go, they are in better shape than the average American.  Employment markets will get better and good habits will ensure that debt gets paid off.  Bad habits will sabotage your financial wellbeing for a lifetime.

US Government Seizing Taxpayer Cash?

The other day I wrote about Greece and the Prime Minister’s decision to seize Greek local government cash in order to fund their federal government expenses.  Apparently, cash seizures by the Government are happening here as well.  However, it is the social security seizing the money. 

More than 77 million Americans look forward to receiving tax refunds.  Unfortunately, for some those refunds never made it to them. 

Shalita Grant was looking forward to receiving her refund.  However she never received a refund that was legally due her from the IRS.  Instead, Social Security decided to take her $1,500 tax refund.  Ms. Grant did not owe the social security any money.  She was not drawing on social security.  However, her father was overpaid $13,000 for a Social Security disability payment.  So, they took his daughter’s refund. 

Social Security claims they have the authority to go over a relatives refund. However, they repeatedly deny that they practice such a thing.  In fact, they told Congress: “We did not…(collect) any…debt that was incurred by a parent or another family member.”

A CBS investigation uncovered 12 people that had the same experience.  Due to the investigation, Social Security refunded to at least two of the taxpayers that were interviewed for the story.

Cash seizure by the government…..don’t think it could happen here?  Think again… 

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