“But I don’t want to go among mad people,” Alice remarked. “Oh, you can’t help that,” said the Cat: “we’re all mad here. I’m mad. You’re mad.” “How do you know I’m mad?” said Alice. “You must be,” said the Cat, “or you wouldn’t have come here.”

Just as Alice ventured deeper into Wonderland, investors across the world are now entering a period of implausible madness as it relates to negative interest rates.

What once seemed utterly foreign to savers has now become a reality of epic proportions. My first mention of negative interest rates in this column was made in late June. Back then, about $13 trillion of debt around the globe was priced to produce less-than-zero return. Yes, we’re talking about a guaranteed loss to investors. Now, less than a few months later, yet another $4 trillion has been piled onto the mountain of negative-yielding government debt.

And, just as the Cat informed Alice that she’s as crazy as the others, the US now appears to be moving ever-closer to the same bizarre financial conditions we see throughout Europe and Japan. In less than a year’s time, the 10-year US Treasury yield has plunged from near 3.25% to under 1.5%. Sudden downward moves in interest rates like this are truly rare, and when coupled with an inverted yield curve typically indicates major economic weakness is on the horizon. However, this time, and for now, the stock market has simultaneously and substantially risen in 2019. This conundrum is quite palpable for students of market history.

As I’ve dug more deeply into the rationale of investors’ mysterious acceptance of negative yields, the understanding I’ve sought has not yet emerged. As Alice experienced first-hand, when faced with something you know to be crazy, others will work very hard to convince you, and themselves, otherwise!

For example, here is a fun way to convince you that negative interest rates are not so nutty. Faced with a negative interest rate in their savings account, a rational person would simply refuse to accept the slow and steady confiscation of their wealth by their bank and would instead withdraw their cash in order to bury it in their back yard or hide it under their mattress.

Of course, to truly safeguard your pile of cash – or your preferred store of value, such as gold bars or gems – you would incur some ongoing expenses to keep it secure. That expense could take the form of guns, building a tall fence, installing an elaborate security system or even hiring private security guards. Using the power of this logic, why is it so odd to think that you’d willingly pay your bank to hold your money in safekeeping?

And so, as Alice aptly noted, it appears things may keep getting “Curiouser and curiouser!” until investors eventually wake up.

Jason P. Tank, CFA 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

We certainly live in peculiar and complex times. Today’s column offers two money tips. One involves a huge consumer privacy breach and the other involves the inexplicable plunge in interest rates.

Remember the highly publicized Equifax privacy breach back in late 2017? Equifax failed to protect the personal data of nearly 150 million people. To put that into perspective, that represents about half of the population of the United States. For a credit bureau entrusted with personal data on almost every consumer around, it’s safe to say it was a big deal.

Now almost two years later, Equifax has reached a settlement with both the federal government and all 50 states. As part of the settlement, Equifax has agreed to provide multiple benefits to affected people.

The most attractive benefit of the settlement is the offer to provide – for free – up to 10 years of credit monitoring. This is equivalent to about $1,200 to $1,800 of value. The government forced Equifax to pay their competitor, Experian, to provide the monitoring service for the first four years. And, among other offered benefits, those affected by the breach will also qualify for free identity theft insurance protection of $1 million.

To find out if you are eligible, go to EquifaxBreachSettlement.com. It takes mere seconds to check and only a few more minutes to file a claim for your benefits.

Speaking of free money, this brings me to my second tip.

Have you noticed what has happened to interest rates lately? If you haven’t, now is the time to take notice of today’s rock bottom mortgage rates. It might make financial sense to consider refinancing. This is especially the case for those who bought their home around 2010, 2013 and even in late 2017 when mortgage rates were much higher.

Here’s an easy example of the possible merits of today’s refinancing opportunity. Imagine you originally took out a $200,000 mortgage back in 2010 with a 30-year fixed rate mortgage of 5%. In this case, your monthly principal and interest payment is about $1,075.

After diligently making the last 10 years of mortgage payments, you’d still owe about $165,000 with 20 years left to pay. That’s just the perverse math of a mortgage during the early years. Fortunately, the principal paydown really accelerates in the later years.

Now, with the very recent plunge in interest rates, today it’s possible you could be offered a new 20-year mortgage rate of close to 3.5%. At this lower level, you could reset your mortgage payment to around $950 per month and save about $1,500 per year.

Keep in mind that banks won’t refinance a mortgage for free. The closing costs need to be closely reviewed and evaluated against your expected savings. Of course, be sure to shop around. And, remember the longer you plan to stay in your home the more compelling a refinancing becomes.

Jason P. Tank, CFA 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

It’s that time of year when students start to pack their bags and head back to college. I remember the feeling, even if only vaguely. What I don’t remember, however, is the cost of college being so prohibitive for so many. It’s become a financial epidemic.

I must admit, I was incredibly lucky to earn my degree without being saddled with debt. Today, about 50 million people owe a collective $1.5 trillion in student loans. To put this into perspective, approximately one in three between the ages of 25 and 35 are grappling with student debt. Predictably, student loan default rates are expected to rise as the problem has grown over the decades.

Student loan debt and the cost of college looks destined to be a top issue in the 2020 presidential campaign. Most Democratic contenders support some form of student debt relief, if not outright debt forgiveness. Similarly, the leading candidates are also in favor of more affordable, if not outright free, college.

Today, about 20 million people attend public colleges and universities. Very roughly, the average cost of tuition and books is around $8,000 to $10,000 per year. This brings our nation’s annual tuition bill to about $150 billion to $200 billion. After counting the tens of billions of dollars in tuition support already provided by federal grants and many state and local initiatives, the price tag of a national free college plan represents less than 5% of annual federal tax revenues.

Further, if the currently outstanding balance of $1.5 trillion in student debt were wiped away, the one-time cost would be equivalent to absorbing just 18 more months of our federal government’s deficit spending at the current rate.

However, even these estimates don’t paint an accurate financial picture. The negative economic impacts of the current student loan debt issue are meaningful and have been building over time. Statistics show that more young people now choose to delay marriage, delay starting a family and delay buying their first home. The ripple effects of the student debt crisis on economic growth have been consequential.

I suspect if one were to properly model the economic boost provided by both a student loan forgiveness plan and a free college plan, the overall cost would likely be far less than feared. According to the Census Bureau, over a full lifetime, people with a college degree earn about 1.6 times more than those with only a high school diploma. The lifetime boost in income tax receipts would lower the projected price tag of these plans, even after ignoring the clear benefits that result from a more highly-educated workforce and society.

As we listen over the coming months to politicians argue over the fiscal and political feasibility of their many plans, my hope as a voter is we rely on robust economic analysis when evaluating these proposals. And, perhaps more importantly, I hope we work to remember a time when college was far more financially accessible. Amazingly, it really wasn’t that long ago.

Jason P. Tank, CFA 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

I grew up in a big family. As one of the middle children of six, there wasn’t a moment of quiet in my formative years, let alone clear memories of outright peace. Don’t get me wrong; it wasn’t war either. It felt more like a long-term truce.

Now as adults, my siblings and their families converge upon Traverse City each summer. My formerly big family has become huge. The original six have multiplied into 23. The complexity of it all seems exponential.

We’ve now got kids under five, all the way up to age 20. We’ve also got vegans and meat lovers, too. Just like my parents, my siblings were also cursed with a very opinionated lot. The many elements that determine the overall outcome of our reunions are incalculable. And, yet, the contained chaos works.

It reminds me of the way times have changed in financial markets. Information now flows faster and conflicting opinions pop up on our devices every second. Today, the opinions on the current state of the economy and the path of the markets are fast and furious.

Some are warning of an imminent recession and others call for continued growth even as we’ve reached one of the longest economic expansions in modern times. Bonds are clearly signaling a slowdown and stocks keep hitting all-time highs. Just like my family gatherings, the environment is a cacophony of conflicting opinions. You simply have to know what you can and cannot control.

When it comes to building and managing investment portfolios, there are three elements that matter most, in my view.

To start, you can control the asset allocation. That’s simply about finding the appropriate mix of stocks and bonds. Studies show that your portfolio’s asset allocation is the factor that most affects portfolio returns and overall risk.

Next, you can control the level of diversification inside your portfolios. Diversification is about finding the right mix within your asset allocation. As I remind new clients when setting our formal investment management guidelines, a portfolio with 60% in stocks isn’t balanced at all if that exposure is represented by just one stock. Sorry Warren Buffett, I really don’t care if it is Berkshire Hathaway. One stock simply isn’t enough for us mere mortals!

Last, we have control over our investment selection process. Whether it’s picking Visa over AT&T or choosing a low-cost index fund over an actively-managed mutual fund, the specific investments in a portfolio really do matter. For example, the rising tide of a bull market tends to lift all boats. However, in a recession, AT&T will likely provide portfolio protection that Visa will not.

Just like my family gatherings, both the speed and volume of market opinions has picked up exponentially. Today, the near-term outcome seems less predictable than usual. My advice is to focus on what can be controlled and what cannot is best handled with a healthy sense of acceptance. As I’ve learned at my family reunions, pouring yourself an extra glass of wine really can’t hurt either!

Jason P. Tank, CFA 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

Like the stock market, political partisanship is at an all-time high. Case in point; it recently took the Securities and Exchange Commission (SEC), our nation’s protector of investors, 1,363 pages to barely tweak the rules of the road for how financial professionals should treat their clients. That’s about the same length as War and Peace, folks!

After a decades-long industry battle, with one camp laser-focused on the goal of imposing a true fiduciary duty on all financial pros, of all stripes, to place their clients’ interests ahead of their own, the big brokerage firms successfully watered down the regulations. The SEC’s final rule is ironically called “Regulation Best Interest.” The result? Brokers and registered investment advisers will continue to operate under a different set of professional obligations to their clients. And, naturally, the general public will remain unlikely to spot the difference.

The new regulation represents the nail in the coffin for Obama’s high-risk strategy in early 2015 to require brokers to avoid and disclose all conflicts of interest and act as a fiduciary to their clients at all times. After all, registered investment advisers have long-practiced under those rules. Why did Obama try to push this through the Department of Labor and not the SEC? For years, Congress wouldn’t seat enough board members to the SEC, essentially creating complete institutional gridlock.

The epithet on Obama’s attempt was finally written just last month with a partisan vote to not impose an industry-wide, unified fiduciary standard of care. It only took about three years and heavy industry lobbying to quash his attempt.

What the new Regulation Best Interest means for clients is that consumer confusion will continue. Brokers will still be able to imperceptibly switch professional hats; on one hand acting as simple, middle men in a financial transaction and, on the other, acting as true fiduciaries to their clients. Rest assured, the color of their hats will be only shades apart.

Like a Facebook privacy policy consent button, consumers should also get ready for more financial industry disclosure forms with embedded website hyperlinks designed to obfuscate consumers’ true understanding of the nature of their relationship with their financial professional.

The SEC is even making registered investment advisers add two additional pages to their already 20+ page regulatory disclosures. It shouldn’t take 2 pages, let alone 1,363 pages, to state unequivocally that you have a legal fiduciary duty to always place your clients’ interests first. One short sentence will do.

Of course, just as transparency shines a light on the truth, opacity is the lifeblood of a complex sales process. In many ways, that’s precisely what the SEC was created to guard against. Their new Regulation Best Interest simply doesn’t get the job done. Political partisanship certainly did.

It’s once again time for registered investment advisers to take matters into their own hands and loudly beat the drum about their legal fiduciary duty to clients. Now, that is definitely in the public’s best interest!