Q: Our brokerage firm has asked us to name a “Trusted Contact” on our investment accounts. Should we put this in place?

A: Having designated “trusted contacts” on file with your brokerage firm is a good idea.

Among other reasons, a trusted contact is a person your brokerage firm or investment advisor can reach out to in the event they suspect possible fraud or financial exploitation. In an environment of increasingly sophisticated cybersecurity threats, too often involving vulnerable seniors, having a trusted contact on file may just be the saving grace that stops a crime in its tracks.

It’s important to know what a trusted contact can and cannot do. A trusted contact is not given any special authorities or power over your accounts. They cannot trade or conduct any business on your behalf. And, they cannot gain access to your financial information. They are just a person that your brokerage firm or advisor can talk to under certain circumstances, including confirming your current contact information, inquiring about your health status, as well as learning the identity of key people named within your estate plan.

Q: I’ve been hearing that doing a Roth conversion in a bear market is tax smart. Why is it more attractive at this particular time?

A: Let me first set the scene. You’ve got an IRA funded with pre-tax contributions. Of course, the flipside of getting that tax break is that someday, when you finally decide to draw from your IRA, you’ll eventually have to pay the taxes. It seems Uncle Sam is always waiting in the wings!

In a bear market, however, your IRA’s balance is temporarily depressed. It’s better to convert part of your regular IRA to a Roth when it’s down in value. After all, you’ll pay less tax on the portion you choose to convert before your investments recover.

However, the benefits of doing a Roth conversion are not quite so clear cut. When done correctly, it takes careful tax analysis and, often, a crystal ball.

For example, if you get too excited and convert too much of your IRA to a Roth, you could accidentally push yourself into a higher tax bracket. This easy-to-make mistake defeats the purpose of legally taking advantage of the IRS. Ideally, you want to do a Roth conversion in a lower tax bracket than you’ll experience in the future (cue the crystal ball!)

Additionally, if you are already collecting Social Security, a Roth conversion could also push more of your Social Security into the taxable column. You really don’t want the IRS to collect taxes on your Roth conversion only to find out a larger portion of your Social Security ends up getting taxed.

Benjamin Franklin was a wise guy. He’s the one behind “Don’t throw stones at your neighbors, if your own windows are glass.” He also came up with “No pain, no gain.“ Amazingly, he shared this nugget about 250 years before the internet was even invented, “An ounce of prevention is worth a pound of cure.”

Online security is a growing problem that needs attention. This is especially true for seniors. I was recently reminded of this working with a client who experienced financial fraud. Thankfully, my client was made whole. But, it certainly didn’t come without worry and stress. In the spirit of prevention, here are some easy things you can do.

Two-Factor Authentication: This is the Holy Grail for your online financial accounts. Whenever you log in, a text message should be sent to you with a unique code to gain access to your accounts. Almost every reputable financial institution has this safety measure available. If you can log in, without going through a two-factor authentication process, please stop reading this article immediately and contact your bank, credit card and financial advisor.

Use a Password Manager: Every single person I know struggles to remember all of their usernames and passwords. Naturally, the easiest thing is to use the same login information for every website. Unfortunately, that happens to be the best way to let fraudsters gain access to every one of your accounts! So, what can you do? Use a password manager, such as LastPass or 1Password. These applications will allow you to establish unique passwords and, most importantly, securely store them all in one place.

Set Up Activity Alerts: If some crook does gain access to your accounts, there are things you can do to limit the damage. For example, many financial institutions allow you to establish text, email or phone alerts for large purchases or possible fraudulent transactions. If you cannot figure out how to set up these account alerts, once again just call your bank, credit cards or financial advisor for help.

Hobble Your Accounts: I have to admit, this suggestion might sound a bit weird. For my clients, I’ve purposely limited what they can do online in their investment accounts. Unless I’m told otherwise, they cannot just log in and proceed to buy or sell securities or move money out of their investment accounts. Of course, the same applies to every bad guy who might happen to gain access, too!

While going completely offline is always an option, it’s increasingly cumbersome. Remember, fraudsters don’t like to work that hard. They seek easy targets. When they hit a brick wall, they tend to move on. With a few easy steps, you can make it a lot harder on them while still enjoying the conveniences of our connected world.

Jason P. Tank, CFA, CFP® is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

Q: What’s going on with interest rates lately? I know the Federal Reserve is still raising interest rates. But, now I read that mortgage rates are falling and my bond portfolio is also recovering. Can you explain?

A: As we all know, the Fed is deep in the midst of a serious rate hiking campaign. Since March, short-term interest rates have been raised from zero to about 2.25% to 2.5%. The Fed started out slowly this spring and then really picked up speed by this summer. It’s been one of the fastest “monetary tightening” phases in modern history.

Given the Fed’s inaction last year in the face of a sudden surge in inflation, they went into catch-up mode. In unprecedented fashion, they raised rates 0.75% at both their June and July meetings. The Fed basically carried out a policy of shock-and-awe. By mid-June, the major bond market index was down well over 10% as compared to the start of the year.

Thankfully, I believe the Fed has now shifted into a more gentle phase. They have three more scheduled meetings in 2022 and have signaled an additional 1% in cumulative rate hikes by Christmas. Current expectations are for a 0.5% hike at their late-September meeting followed by two smaller 0.25% bumps at the November and December meeting. After that, they’ll likely enter a wait-and-see phase to see how the dust has settled on inflation and the economy.

Investors have more-or-less factored all of this into their calculations. They are already looking “over the valley”, so to speak. And, what do they see on the other side? A break in the inflation fever, for starters. But, to accomplish that feat, they also see the Fed having pushed the economy to the very edge of a recession. And, what happens in a recession? The Fed shifts into reverse and starts to cut interest rates!

So, when you read headlines about mortgage rates falling and when you notice your bonds are starting to recover, try to focus on the direction of longer-term rates rather than short-term rates. The fact is, the Fed can really only control short-term interest rates while longer-term rates are largely set by the market.

To fully exorcise the demon of inflation, the Fed is hell-bent on ignoring hockey legend Wayne Gretzky’s famous advice, “Skate to where the puck is going to be, not to where it has been.” Based on current market signals, investors are busy placing bets that the Fed will take things too far. We’ll see where the puck goes next.