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Giant of the hotel Marriott (NASDAQ: MAR) has just announced a massive data breach and consumers can take some measures to ensure that their personal information remains secure. Also, two celebrities are in hot water with the SEC after helping to promote some initial offers of coins, or ICOs, without revealing that they were being paid.
And finally, a new study found that most young Americans soon drew on retirement savings – and often for the wrong reason. Guest Jason Moser and Fool.com contributor Matt Frankel, CFP, talk about all this and more about the episode of this week's Industry Focus: Financial.
A complete transcription follows the video.
This video was recorded on December 3, 2018.
Jason Moser: Welcome to Focus on the sector, the podcast that dives every day in a different sector of the stock market. It is Monday 3 December. I'm your host, Jason Moser. In today's show, we will talk about the negative side of the cryptic advertising campaign. We'll talk about why young workers are dipping into their retirement accounts and do not seem to be doing it for all the right reasons. We will attack chirping, obviously. We will give you One to Watch for the week.
We are about to begin today's episode by talking about this massive data breach for Marriott that was just announced last week. Joining me in the studio via Skype this week, as always, is a certified financial planner, Matt Frankel. Matt, how are you?
Matt Frankel: Pretty good. It's good weather here. I can not complain. Good weekend.
Moser: You know my philosophy – you could complain, nobody wants to listen, so why bother.
Frankel: Above all, not you, right?
Moser: [laughs] We will try to make this show encouraging, give people something to look at. Probably do not choose the right topic to start this week. This was a massive and massive data breach by Marriott. It seems to date back to 2014, which precedes Marriott's megadeal with Starwood. It also seemed like the break, perhaps, started on the Starwood side of the company.
Let's find out a little bit. While Marriott is not necessarily a company that we will cover here in the financial universe, this is one of those things that happens, and as investors, as consumers, we must be accustomed to this fact now that data breaches are a question of whether , not when. The more people use the technology, the greater the data breaches will be. I always approach these data breaches like when, not if. There are things that we consumers can do to help our cause here.
You worked for Starwood for a while, did not you, Matt?
Frankel: Yes. Not in any department that would be connected to this incident.
Moser: Ah OK. We're not pointing our fingers, then.
Frankel: [laughs] No. I was used to working for Starwood, not in any capacity related to this. There are some key aspects to this, just as there were Equifax violation of the last year, we have done a whole episode on this show. The basic things to know: first of all, what was taken. They said their entire database was hacked. I do not know about you, but I do not care if anyone sees my historic reservations at the hotel.
Moser: No, not me either.
Frankel: I am happy to share with anyone where I have stayed on Starwood property. When I go to the headquarters, I live in a Starwood hotel. The real problem is credit card numbers and other such identifying information.
The thing to know is what to do. One, take a step back. We are not sure exactly what someone has, or who has understood, or whether it will even be a problem. The important thing to do as a consumer is to be sure to monitor your credit regularly. You should do it anyway. There are many services out there that will allow you to monitor your credit report for free. You are actually entitled to a free copy of each of your three major credit reports once a year. Annualcreditreport.com is where you get the official one. It is really a good practice to get into it, especially a credit alert service that will send you a warning if a new account has been opened or if a new request occurs. You can stop these problems in the bud before they start.
Going further, what you could do is create a fraud alert on your credit. To do this, you just need to let one of the three credit bureaus know. They are required to notify the other two. This sets an alert when the credit is applied in your name. That lender will see a fraud warning, meaning they should take additional measures to verify that you are who you say they are. If you are applying for a credit card and see a fraud alert, they may ask you to send us a copy of your driving license, or something.
And if you're really worried about your stolen identity and you do not need to use your credit at any time, you can put what is called a credit lock there. Thanks to the recent banking reform law, it is now free. You can create a credit lock. You have to do it with every single credit bureau. This will effectively prevent anyone from opening new credits in your name. What it does is block your credit report. When someone asks for credit on your behalf, that creditor is not physically able to get your credit, so he has no way of making a loan decision.
So, there are three things you could do. Just to recap, one: keep track of your credit, set up alerts so you know exactly what's happening at all times. Two: put a fraud alert if you're worried. If you're a regular Starwood customer like me and you're worried that this may have influenced you, a fraud warning is a great way to go. And a credit lock, especially if you notice something suspicious, is the most drastic step you could take.
Moser: I like your point about the constant and regular monitoring of your credit report. It's something that, maybe a bit of a long time ago, may have been a little bit. harder to do, a little more expensive. But as you've noticed, there are so many different ways to do it now. It can really be that easy. Just like an example, I have a American Express paper, and give me a small service I can register where each quarter, give me a copy of my credit report. It really costs nothing during a year. It's something I never need to worry about. I know that, every quarter, I will have a copy of my credit report, so I can see it, make sure everything is online. If there are discrepancies, there is an easy way to try and solve it.
I do not know that people recognize, perhaps at a younger age, at least, how important it is, how precious a resource is that the credit score really is. It is something that can open many doors to you. If you do not keep it, if you do not protect it and build it and make it grow, you're selling a little.
Frankel: Sure. A lot of young people also underestimate the suffering of correcting it once your identity has been stolen.
Moser: That's a good point.
Frankel: In the end, you should be able to remove everything from your credit report, but it may take a while and a lot of headaches, lots of paperwork to fill out, police reports and things like that. You have to convince every creditor that the account was not actually yours. It could be a big uphill battle. I know friends who have spent a year or more completely canceling their credit after a serious violation.
Moser: It seems a huge nuisance. One other thing I did before, I do not do it religiously, but when I do hotels or larger purchases like that, I tend to use a credit card rather than a debit card. The reason it is, if someone is going to steal my identity – and let's face it, we live in an era when oversharing is rampant. People publish what they are having breakfast Facebook every day and telling you what they are doing right after. It seems that stealing someone's identity would be easy enough given the current state of social networks. For me, I will often use a credit card compared to a debit card because at least if someone gets my credit card number, that's fine. I mean, it's not good, but at least it's not something related to my current account, where they can simply empty the money from my bank account.
At the end of the day, your bank will take care of you. Your credit card company will take care of you. But I've always had this little phobia about connecting too many things to our bank account or debit card, thinking that if something had been hacked or stolen … I received that money that was stolen from your account, that's more of a problem pressing that deal with credit card fraud. You are not in a time crisis as much with credit card fraud, and you are not put in a crunch with a credit card as if you were with a debit card or by connecting something to your checking account.
Frankel: Yes sure. Credit cards generally have zero liability for fraud. With debit cards, you have some responsibility. I think it's $ 50 or so now. But credit cards generally have a responsibility for universal zero fraud these days. This is definitely a good point.
Moser: In conclusion, these data breaches are going to happen. There's nothing you can do to control it, so always keep this sort of thing in mind. Protect your identity, protect your credit report, your credit score. You have ways to do it. We invite you to keep it in mind.
Let's talk a little bit about something, I do not mean the lighter side of the news, because I'm sure there are some people who probably ended up losing a little bit. from something these guys were pushing. Over the weekend we were reading an article about this massive gold rush of cryptocurrency and these ICOs, initial offers of coins, which seem to crop up right and left. It's hard enough for someone to explain Bitcoin and how it works and why it's important. Now, we have all these other coins coming from these ICOs. And apparently, there are some celebrities who felt like they were there and get a small piece of action.
DJ Khaled and Floyd Mayweather have some problems with the SEC. It seems they may have been able to get a resolution there. These two guys were supporting these ICOs, they were pushing these ICOs, telling consumers, telling people: "Dude, you have to come in while the good guy is doing well, you have to get into this game-changer." The bottom line was, they never revealed the fact that they were actually paid to tell people that. It was not like they were doing it for the goodness of their heart. Here, the SEC finds out, and now they found themselves in a bit of hot water. It seems that the SEC is settling down, the two individuals will pay pretty heavy fines and I think they will return all the money that was paid to make promotions there.
Come back to this cryptic mania, Matt. I understand why it exists. I understand that there is potentially a future there. We held here Aaron Bush a few weeks ago to talk about it a little bit more. But when I see things like that, I become so disenchanted.
Frankel: It is completely understandable. Lately people have lost enough money in legitimate cryptocurrencies. Without counting the ICOs, the total capitalization of the cryptocurrency has decreased by about 700 billion dollars from the peak.
Moser: It's phenomenal!
Frankel: So there were some money lost here. With these ICOs, personally, I hope that DJ Khaled and Floyd Mayweather are not the only two who get into trouble for pumping these ICOs in recent years. Just to give you some context, in 2018, so far, about 12 billion dollars have been collected with these ICOs. One study found that only 8% of them can even achieve a cryptocurrency exchange. The rest either faints, remains stuck in fundraising, or simply disappears and fails altogether. Only 8% get to an exchange. The rest is complete losing money. The study found that 81% were flat-out scams. I even heard a Bitcoin expert on CNBC recently talk about how the ICO market is now dead, that it was so bad, that it turned off so many investors, that it's not just a way companies will be in able to raise capital. It's just been ruined. It's a little crazy, what happened there.
Moser: Really. It was a mania. I was thinking about this, and it strikes me, one of the investment lessons I take away from something like that, it's a good reminder that it's okay just to look at something and admit to yourself that you do not know enough to really be able to offer a & # 39; educated opinion, where to put money behind it. It's okay just to make a pass. Warren Buffett does all the time. Lightweight something and and & # 39; Like, "Nah, I'll throw it in the pile" too hard. " I have heard many people talk about cryptography and Bitcoin in particular. I understand what they are telling me. It is difficult for me to still connect the points there in understanding why I personally want to be exposed to this. So I throw it into the "too hard" pile. I just do not want to joke. I do not want to disturb you.
I am struck by the fact that in the case of crypto, with the Ico and the mania that came out, I bet that 98% of the people who were actually accumulating money in this has no idea how it works and why it matters, or why not it matters.
Frankel: It's kind of the biggest silly theory at work here. People see these things going up and up and up and up and up, and they say, "I'm going to buy it and someone else will pay more for it." Kind of the same thing that led to the merger of housing in & # 39; 07, & # 39; 08. People have seen other people get rich in real estate, so they bought real estate at these inflated and astronomical prices, saying "Oh, the next one will pay me $ 100,000 more for the same house". The same thing is happening here, and in reality it is not happening very well.
Moser: No, it's not working very well. I never ended up investing any kind of cryptography. You have done?
Frankel: I actually extracted around 30 bitcoins when they were worth about $ 10. I really would like to have them back.
Moser: Did you extract a couple? What did you do to do it?
Frankel: Well, then, it was really easy. In the early days, it could be done with a basic graphics card or a repeating graphic chip. Now, you need these giant drilling rigs. And I did it just to understand how everything worked and what it was, and I ended up getting around 30 coins. I think I bought about 10 of them and got around 20 of them.
Moser: What did you do with the coins you had?
Frankel: I sold them when they were about $ 200.
Moser: At least you did something.
Frankel: I sold it thinking I had made the best move ever. Then I saw them go up to about $ 20,000 a piece. Do the math, $ 20,000 X 30.
Moser: It's better than the story of the guy who used his Bitcoin in the day to buy Pope John Pizza or something like that You did better than that individual, at least yes.
Frankel: There was another guy who threw a hard drive with the encryption key for about $ 100 million in Bitcoins.
Moser: Lord!
Frankel: He actually paid someone a couple of hundred thousand dollars to look for a whole landfill and never found it.
Moser: Successes keep coming. Well, it's a good reminder for investors out there, make sure you know what you're dealing with. And when you hear these celebrities scream from the mountain peaks, maybe give them a second look and make sure they have the faintest idea of what's going on before they start buying based on their word.
All right, Matt, we were talking before we recorded this article that we found over the weekend. It is disconcerting, to say the least. Apparently, most young workers use their retirement accounts as an ATM. And this does not sound good in any way, shape or form.
Frankel: Yes, it's bad. [laughs] About 60%, I think 59% of people aged 18-34 have drawn on savings for retirement. Of course, these people are not retired. Some of these, to be honest, were for good reason. If you have, for example, medical bills that you have no other way to pay, that could be a valid reason to draw on your retirement money soon. The same with if you are unemployed and you have no other way to cover your daily expenses. This can be a good reason.
But, just to discard some statistics, 16% said they took the withdrawal to make a big purchase for themselves. 13% said it was just to spend the money. Another 7% said they had taken the money from their retirement to go on vacation.
First of all, none of these is a valid reason to take your money, so you will be slapped to do it. The IRS penalty for early withdrawals is 10%. And if you remove it from a deferred tax account such as a 401 (k) or a traditional IRA, you have to pay extra taxes. So you're talking, depending on your tax bracket, like a haircut of 30% more right out of the games when you take the money.
The real bad reason is that you're robbing from your future self here. From the perspective of the financial planner, let's say you have $ 5,000 in your 401 (k) and leave the job. You might want to take a vacation or something. If you withdraw $ 5,000, this could easily become $ 3,000 after taxes and penalties. In the meantime, if you leave it invested for 30 years, with only the average rate of return on the stock market over the course of history, $ 5,000 would become more than $ 76,000 by the time you're ready to retire in 30 years. $ 3,000 now, $ 76,000 later. It seems the greatest of all time for me, but many young people are making the wrong decisions.
Moser: Yes. I remember, there was once, when I was that age, it's a bit harder to see so far down the road, to really believe it's really important. It is very easy to say "Nah, I will cross that bridge only when I get there". But the problem is that, in the end, you get to that bridge. And if you've misbehaved to the end and you've spent your savings, well, you're not stuck with anything and you've lost your biggest advantage in time. You can not invent anything, you can not recover what you lost. That's why we tell people that you have to start immediately, just when you get that first job. Even if it's only 5-7% of what you get paid. Start putting away that stuff. Time is really what allows you to become rich if you simply take the discipline to do it.
I'll tell you, withdrawing it for these kinds of reasons … I understand a medical emergency or something. And, I mean, you can borrow from your retirement account in some cases to make a payment on a home, and you can repay. There are qualified reasons to do this. But just to spend the money, or a holiday or something? Personally I would never do it. This could put people in a really big crisis when they get a little bigger.
Frankel: Yes. Above all because many of them do not realize that this translates into a great tax success when you do it. They will take this money, then they arrive at tax time in April, and, "Oh hell, I owe 3,000 dollars to the IRS I was not thinking about." This is also a problem. And then they do it again, and they have to take those $ 3,000 from their retirement account to pay for the IRS, and the cycle repeats itself. It can become a real cycle and it can be really difficult to get back on track when you start withdrawing from your retirement account for silly reasons.
Moser: We hope the young people out there hear this and choose not to start pulling out their retirement accounts like an ATM. I'll tell you, you must have it. You can not rely on something like social security when the time comes. You can not really count on how much you will be able to take care of yourself. You must be able to take advantage of the time you have. Here's what it boils down to.
Let's have a look here at Twitter for the week. A couple of tweets out there. Now, there's one here that brings back the history of which we spoke at the start of the show, the Marriott data breach. @CashRulesPN on Twitter. Palbir says: "Use my credit cards and passport number as you like, but if my points are dried up, there will be hell to pay." [laughs] He is a loyal customer who does not want his points to go anywhere. I understand, I appreciate it.
So, a tweet we got from Caleb, @Caleb_WVU. I received this tweet at the start of the week. This was a good question. I also wanted to have your feedback, Matt. Caleb says, "Jason, a question that I brooded and I would like your version to be taken into consideration." When you get to the point that there are not many titles you would like to add at the current time, whether it is stocks I love are already heavy in my portfolio or I'm not ready to pull the trigger on something new in my checklist, it's more advantageous to accumulate those cash, on average in an indexed fund or in a combination of both? your contribution in advance. "Matt, what do you think about it here?
Frankel: My answer is in cash, but up to a certain point.
Moser: Right.
Frankel: I like to keep the money until it accumulates over a certain level. I suggest you have a percentage of your resources in mind that you are willing to keep cash at any time. For me, it's 10%, just for an example. If at any given time, more than 10% of the value of my wallet is in cash, or I look at some stocks to try and find a way to put that money to work. I almost always choose stocks on indexed funds, but index funds are fine if you really can not find another way to make it work.
I would say the cash is great. It is always good to have money to take advantage of opportunities. At some point, you will find titles that you find interesting. But, at some point. You do not want to have half your wallet in cash because, if what happened in recent years repeats itself, you will really lose the boat in a fantastic moment to be an investor. So mine is 10%, but sets what makes you feel comfortable. Once you have passed that point, try to find ways to make it work.
Moser: Yes, I think it makes sense. I recently earned a little more money due to the collection of some earnings from some holdings. Normally I do not even like having a large sum of money. One of the things people always ask, they say, I need to do something with that money to make something. I have this large amount of money in there, and earn nothing. And I understand that. I understand. But, one way I've tried to look at this is that you might not get any money out of it right now, but you could consider performance like skill, liquidity, to put that Money in works whenever you're ready, so if something happens, then you do not have to try to cut from another position or figure out other ways to raise money. In reality, the return is liquidity, it is that availability.
For your point, I think everyone should determine their number there. 10% is good Right now I'm probably a little more exaggerated, and I'm really trying to put that money on for a good job. But the point is valid. The market out there, there are not a lot of roble out there to be had. Be only deliberate, be patient. Remember, it's a marathon, not a sprint. Excellent question from Caleb. Appreciate it. I also appreciate your perspective, Matt.
We end the week, as always, with One to Watch. Matt, what's yours one by one for next week?
Frankel: Last week, I suggested a fund for financial indices. This week, I'm going to narrow down the field. I'm about to say Goldman Sachs (NYSE: GS), GS ticker, which is one of my favorites. The listeners know it. I have already said that Goldman has a lot of space to manage consumer banking. The number 1 brand of Wall Street is still arguably. When you listen to Wall Street, it's practically synonymous with Goldman Sachs for many people. And now, I'm in this legal problem with Malaysia. Malaysia is trying to recover $ 600 million of taxes it paid in a badly-funded bond fund. Now that they are involved in this, the title has taken another success, and is actually trading for less than its book value for the first time in over two years. I think Goldman really looks, really interesting at this point.
Moser: And what is the ticker for Goldman?
Frankel: GS.
Moser: GS. Yes it is. People who follow me on Twitter might know that on November 20th I bought Ameris Bancorp, along with another stock, Etsybut I'm going to go on and make the light shine on Ameris Bancorp this week because I added Ameris shares to my portfolio. Most people probably have already heard about this show before. Ameris is a small capitalization bank in southern Georgia. About a $ 2 billion market cap, but in recent years has grown out of all proportion. The FDIC felt it was a great partner in getting some of the failed institutions out of the financial crisis. Ameris has always been able to maintain healthy capital ratios, which is really encouraging. I think the title is a bit on sale in this period of the year here, around the 20X gains today. In their last quarter, they announced they have increased their total assets to close at $ 11.5 billion compared to about $ 7.5 billion at the end of 2017. With a bank like this, the growth of that base of business, growth of that base of deposits, it really helps us to generate the return on assets that we estimate a lot of these banks from.
And then, they have a nice different loan book, which is a testimony of intelligent leadership. They are good administrators of the capital and take care of the shareholders. I think this is a fascinating long-term idea, one that I can not wait to keep for many years to come, and I think listeners would probably benefit from looking at it.
So, we got a big, megabank, and we have a small, small bank. Those are a couple of good ideas for listeners out there.
Matt, thank you very much! Appreciate it as always!
Frankel: Obviously. Always nice to be here!
Moser: Good week, my friend! As always, the people involved in the program may be interested in the actions they are talking about, and The Motley Fool may have formal recommendations for or against, so do not buy or sell titles based solely on what you listen to. The show is produced by Austin Morgan. For Matt Frankel, it's Jason Moser. Thanks for listening! I'll see you next week!
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