Do the Research before Purchasing a Water Line Warranty
From the Denver District Attorney’s Office:
Homeowners in the Denver Metro area are receiving solicitation letters from Home Serve, a Florida-based company that offers a warranty plan on residential water service lines. The warranty covers repair costs to water lines in the event of a residential water line leakage or break. According to the company’s literature, homeowners are responsible for water line damage that is located on residential property adjacent to public areas maintained by the municipal water company. Are such warranties necessary? Only the homeowner can determine the value of such a service and this requires some work on the front end. The following are points to consider before making a decision:
- Know and fully understand what you as a homeowner are responsible for if a water line breaks between your house and common areas maintained by your local water company. City and County of Denver residents can access this information by clicking on the Denver Water website at http:/ /www.denverwater.org/WaterServiceSupport/TroubleshootingRepairs/Leaks/. *Note that Denver Water services most, but not all areas of the Denver Metro area. To determine your local water utility, go to http://www.denverwater.org/AboutUs/ServiceArea/ and click on Service Area Map in the right-hand box.
- Next, review your homeowner’s insurance policy carefully to determine your extent of coverage and to identify coverage gaps. As a precaution, it is always a good idea to sit down with your insurance agent annually, and prior to a catastrophe.
- Home Serve, a Florida-based company, contracts with local plumbers to perform the warrantied work. Check with your local building department to make certain that the service meets local plumbing codes.
- Understand all inclusions and exclusions which are listed in the fine print at the bottom of the Home Serve letter.
- Consider paying by credit card. If a problem arises, charges on your CC can be disputed.
- To access Home Serve’s rating by the Denver/Boulder Better Business Bureau, go to http:// www.denver.bbb.org and click on Check out a Business or Charity.
Denver DA’s Fraud Line: 720-913-9179
Life in the Senior Lane: Emergency Contacts and Electronic Monitoring
By Maryan Jaross, Senior Wealth Manager at Gold Medal Waters
This new series of articles will focus on issues facing Seniors. As a founding member and the Board Director of Colorado Senior Advisors, I have the opportunity to work with and learn from a number of people who provide services that Seniors sometimes need. This series will cover a variety of topics including emergency contacts, Aging-in-Place, Medicare issues, senior real-estate issues, decluttering, long-term care, hospice, and funeral planning.
So, let’s get started.
“Hi Mom! Just calling to see how you’re doing today.” It’s great when Mom answers the phone or your email so that you know she’s okay. But what do you do when you can’t reach her for a day or two … or three? What is your plan? Perhaps you have the phone number of a neighbor or someone who works in her building that you can call if you’re concerned. But, do they have your contact information?
These are very basic issues that we need to work through with family members, and sometimes close friends, as we and they, travel life’s path. Similar to having an emergency plan in case of a hurricane, tornado, or earthquake, families need to establish protocols for staying in touch.
In the 1990s, the “Help, I’ve fallen and I can’t get up” commercials became such a cliche that we forgot that falls in the home are actually very common. Research shows that one-third of all people over the age of 65 and half of all people over age 90 will fall each year. Getting help within four hours can dramatically reduce the severity and long-term effects of these falls. There are a number of organizations that provide electronic monitoring, but that means that you or your loved one must be willing to wear a bracelet or pendant with an emergency button. Depending on the set of instructions you’ve set up with the monitoring company, a press of the button can call an ambulance, call your doctor, notify you or someone you’ve designated, or have a neighbor check in on the person. There are even automated medication dispensers that can simplify medication management.
As you have taken the time to work with us to create a Financial Plan, please make the effort to create an emergency plan with family and friends, and perhaps consider electronic monitoring for those living alone. There are many options available to help you monitor your loved ones, even if they are far away. While it can be a difficult topic to bring up, when you have a plan in place, everyone will sleep better at night. And if an emergency arises, it might make a big difference in the life of that family member or friend.
Lessons in Mutual Fund Flows
Since 2008, economic uncertainty and market volatility have tested the staying power of investors around the world. Many people fled equities during the worst months of the global financial crisis, while others waited for signs of a turnaround before investing more. Their emotional reactions may have exacted a large price on their wealth.
The graph below documents investor behavior during the stock market downturn in 2008 and subsequent market rebound. It offers a few key lessons about investing in turbulent markets.
Figure 1: Quarterly Equity Mutual Fund Flows
Industry vs. Dimensional Relative to S&P 500 Index Performance
January 2008–June 2011
For illustration purposes only. Industry net new cash flow data for US-domiciled equity funds provided by Investment Company Institute ©2011. Quarterly cash flows are estimates that are adjusted to represent industry totals, based on reporting covering 95% of industry assets. Dimensional’s figures are based on net new cash from financial advisors in US-domiciled funds. Industry and Dimensional data reflect investment in US and international equity markets and do not include funds of funds. S&P 500 Index performance is based on monthly returns data. The S&P data are provided by Standard & Poor’s Index Services Group. The S&P 500 includes 500 US stocks chosen for market size. Past performance is no guarantee of future results.
Reading the Graph
First, look at the shaded graph in the background, which plots the performance of the S&P 500 Index (measured by growth of a dollar) over this three-and-a-half-year period. The market began falling in late 2008 and hit bottom in early March 2009. It then reversed sharply and began a long climb through June 2011.
Now consider how mutual fund investors responded to the stock market’s downturn and recovery. The orange line plots quarterly net cash equity flows for the US mutual fund industry over the same period. (Net cash flow is the difference between redemptions and purchases of shares in a mutual fund. A net cash outflow occurs when redemptions exceed purchases.) Equity fund flows were cumulatively negative over the period. Investors were redeeming more shares than they were buying, and on a net basis, capital was leaving mutual funds.1
Note that these fund industry outflows followed the stock market downturn, and net flows stayed negative even after the market rebound. Investors were reacting to the falling stock market by either redeeming their fund shares or delaying the purchase of additional shares.2 When the stock market suddenly rebounded in March 2009, investors who had reduced their exposure to equities missed a good part of the recovery.
This apparent lack of discipline is well established over longer time periods too. Industry analyses and academic research suggest that investors tend to focus on recent performance and make decisions that compromise long-term returns in their portfolio.3
Recent history illustrates why the average fund investor may fail to earn returns comparable to those of the average fund or market index. Markets change quickly, and investors must be in their seats to capture returns. Unfortunately, many investors let their emotions get in the way of participating in long-term market performance.
Now consider the upward-sloping blue line, which plots quarterly net flows into equity strategies offered by Dimensional Fund Advisors. These flows were cumulatively positive throughout the entire period, suggesting that shareholders in Dimensional’s funds continued to purchase shares during the 2008–2009 market decline and after the March 2009 rebound.
As a group, these investors did not flee stocks en masse. In fact, they did the opposite by adding to their portfolios. Their discipline positioned them for the market rebound.
A mutual fund’s net cash flows also may reveal the collective discipline—or lack of discipline—among its shareholders. In fact, the direction of net flows can impact portfolio management and performance, especially for funds invested in less liquid markets. Large net redemptions typically increase the direct and indirect costs of a mutual fund, which compromise fund returns.4 The assorted costs are not borne by redeeming shareholders but by the shareholders who remain in the fund.5 Therefore, consistently positive net cash flows are helpful to a fund’s expenses, strategy, and performance.
Summary
The large net cash outflows from US-based mutual funds since 2008 document investor reaction to market volatility, while Dimensional’s stable and positive net fund flows suggest disciplined behavior. So why would shareholders in Dimensional’s funds behave differently? One reason might be the education, encouragement, and discipline offered by their financial advisor at that difficult time, underscoring the value of sound investment advice.
An advisor’s steady hand helps investors apply discipline in all types of markets, which can positively impact individual performance over time. Moreover, when advisors influence the collective decisions of shareholders in a fund, the greater cash flow stability can prove beneficial to the fund’s strategy, cost management, and returns.
1. Mutual fund investors redeem their shares by selling them back to the mutual fund and receiving cash proceeds based on the net asset value (NAV) of the shares at day’s end. Redemption is a normal activity in a mutual fund, and liquidity is one benefit of owning fund shares. A fund manager may use inflowing cash to cover the redemptions or keep cash in a “liquidity reserve” for this purpose. When cash balances do not suffice, the manager may execute trades to raise the cash.
2. According to the Investment Company Institute, mutual fund flows do not offer a good measure of total demand for equities since funds hold only about 20% of the total US equities outstanding, with the balance held directly by individuals, institutions, and governments. Academic research offers some evidence that mutual fund flows do not drive market returns but reflect investor reaction to markets. (Roger M. Edelen and Jerold B. Warner, “Aggregate Price Effects of Institutional Trading: A Study of Mutual Fund Flow and Market Returns,” Journal of Financial Economics 59, no. 2 (2001): 195–220.)
3. A Morningstar study compared the dollar-weighted returns of the average investor in a fund with the fund’s published total return for the ten-year period ending Dec. 31, 2009. In US equities, the average investor in all funds earned 0.22% annualized, compared with 1.59% for the average fund. (Russel Kinnel, “Bad Timing Eats Away at Investor Returns,” Morningstar.com, February 15, 2010.) Lack of investment discipline also is documented among individual investors who hold common stocks directly. Those who trade frequently pay a tremendous performance penalty for their actions. (Brad M. Barber and Terrance Odean, “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors,” The Journal of Finance, April 2000.)
4. Direct transaction costs include commissions, bid-ask spreads, and price impact incurred when a fund makes trades in response to shareholder redemptions. Net outflows also may generate indirect costs on a fund by forcing its manager to alter the target asset allocation or make disadvantageous, uninformed trades to raise cash. See Qi Chen, Itay Goldstein, and Wei Jiang, “Payoff Complementarities and Financial Fragility: Evidence from Mutual Fund Outflows” (white paper, February, 2007).
5. Mutual funds typically meet a redemption based on the NAV at day’s end but may execute a trade to raise cash on the following day. The redeeming shareholder cashes out at an NAV that does not reflect the trade, and the resulting costs are borne by remaining shareholders. See: “On the Run: Examining Patterns in Mutual Fund Redemptions,” Knowledge at Wharton,http://knowledge.wharton.upenn.edu/article.cfm?articleid=2133, accessed September 27, 2011.
Disclaimer:
The information presented above was prepared by Dimensional Fund Advisors, a non-affiliated third party. Diversification neither assures a profit nor guarantees against loss in a declining market. Past performance is no guarantee of future results. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products or services.
Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission. Consider the investment objectives, risks, and charges and expenses of the Dimensional funds carefully before investing. For this and other information about the Dimensional funds, please read the prospectus carefully before investing. Prospectuses are available by calling Dimensional Fund Advisors collect at (512) 306-7400 or at www.dimensional.com. Dimensional funds are distributed by DFA Securities LLC.
Protect Children from Internet Scams and Exploitation
From the Denver District Attorney’s Office:
Recent studies indicate that parents are doing a good job of keeping their children safe while online. As parents know, children are especially vulnerable to exposure through chat rooms and social networking sites. By taking advantage of filters and monitoring systems, parents are better able to control their children’s access to unsuitable internet sites. Parents have also gained more confidence at identifying trustworthy sites for downloading age-appropriate music and games. However, without proper education and instruction, children can also fall victim to internet scams and identity theft. Likewise, they run the risk of introducing viruses to the home computer. For adults who spend only a limited amount of time around children – such as grandparents, the following are some safeguards to consider:
- Become knowledgeable of the filters and monitoring software that restricts children’s access to inappropriate internet sites.
- Educate children on ways in which viruses and scams can be introduced online.
- Demand that permission be granted first, before allowing children to download anything over the internet.
- Set ground rules regarding the use of social networking sites. Vigilance is especially important when it comes to protecting the identity of children and other family members. Children should be instructed to never post their personal information such as complete name, birth-date, pictures or address; or that of their friends or family members.
While parents are fairly knowledgeable about ways to keep their children safe when accessing the internet via the computer, they are much less so about controls that are offered for different technologies such wireless, smartphones and other mobile devices. For more information on these resources, go to:
www.connectsafely.org or www.safekids.com
Denver DA’s Fraud Line: 720-913-9179
Sovereign Debt Ratings and Stock Returns
In early August, Standard & Poor’s downgraded US government debt from a top-rated AAA to AA+.1 In the weeks preceding the event, some market observers expected a downgrade to result in higher interest rates and lower stock returns.
After the downgrade, yields on US government securities fell across the term spectrum as investors around the world fled to the safe haven of US bonds. US stocks experienced negative returns in the following weeks but logged positive performance from the day of the downgrade to month end.2
These events raise questions about whether changes in sovereign debt ratings impact the financial markets. The short answer is that results are mixed, and that many other factors affect a country’s cost of capital and stock market returns.
Regarding bond markets, history offers examples of major developed countries that experienced a credit downgrade without a significant rise in interest rates.3 Examples include Australia, Canada, and Japan, which lost their top ratings in 1986, 1992, and 1998, respectively.
Other research suggests that countries with high credit ratings may withstand a downgrade better than countries with lower ratings. One study looked at sovereign credit rating downgrades since 1990 and found that bond yields changed little among countries downgraded from the highest triple-A rating. However, countries with lower credit ratings (single A or below) experienced significant interest rate increases following their downgrade.4
Stock market impact
Another question is whether the US downgrade has played a role in the US market downturn—and research does not provide convincing evidence.
Below is a chart that summarizes stock market performance of respective countries before and after a ratings change. It is based upon a study of ratings changes made by Moody’s from 1983 to 2009. During the twenty-seven-year period, the ratings agency made seventy-one upgrades and twenty-five downgrades to governments in the developed and emerging markets tracked by MSCI.
The study identified the date of each change and logged each country’s market performance in the twelve months before and twelve months after the event. Each country’s market returns were compared to the respective market index and the excess return averaged for all events. (Excess return refers to performance above or below the respective market index, either MSCI EAFE or MSCI Emerging Markets, as appropriate.)
The aggregate results show that stock markets of upgraded countries outperformed their respective market index in the twelve months before the rating change (13.83%), while stocks in downgraded countries aggregately underperformed the market index before the event. However, cumulative returns in the twelve months following a ratings change were almost the same for the upgraded and downgraded countries (3.87% vs. 3.73%).5
These results suggest that market prices reflect all available information and expectations about a country’s economic prospects—including the possibility of a ratings change. By the time a country’s debt rating is upgraded or downgraded, the market has already integrated the news into prices. Stock markets reflected positive economic developments prior to a ratings upgrade and negative developments before a ratings downgrade. After the event, markets did not appear to perform much differently, in aggregate.
Conclusion
This research underscores the importance of looking to market prices for signals about the fiscal health and prospects of a country or a company. Based on the foregoing analysis, markets appear to work faster and more accurately than ratings firms to assess a country’s financial condition and evaluate the potential impact on its cost of capital and equity market.
Endnotes:
1. A sovereign credit rating is an assessment of a government’s ability to pay its debts. The US had held S&P’s top rating since 1941. S&P made the announcement after business hours on Friday, August 5, but word of the downgrade leaked during the day. Although timing of the announcement was a surprise, the downgrade was mostly expected, as S&P had issued a negative long-term outlook for the US in April and July. The other top credit agencies, Moody’s Investors Service and Fitch Ratings, have maintained top ratings for the US.
2. Two weeks following the downgrade, the US market, as measured by the Russell 3000 Index, logged a negative 6.82% return (August 5– 19). However, from the day of the announcement to month end, the market returned a positive 1.6%. Russell data copyright © Russell Investment Group 1995–2011, all rights reserved.
3. Tom Lauricella, “Lessons of Lower Ratings,” Wall Street Journal, July 30, 2011.
4. Ivan Rudolph-Shabinsky and Dennis Shen, “When ‘Risk-Free’ Isn’t Risk Free: The Impact of a US Treasury Downgrade” (white paper, Alliance Bernstein, June 2011), www.alliancebernstein.com/CmsObjectABD/PDF/Research_WhitePaper/Treasury-Downgrade_110706.pdf.
5. The twelve-month aggregate excess performance prior to the ratings change was statistically significant, while the twelve-month returns after the ratings change were not.
Disclaimer:
The information presented above was prepared by Dimensional Fund Advisors, a non-affiliated third party. Diversification neither assures a profit nor guarantees against loss in a declining market.
Past performance is no guarantee of future results. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products or services.
Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.
Prior Consent: Stopping Elder Financial Abuse at the Bank
From the Denver District Attorney’s Office:
Older Coloradans now have easier access to a prevention tool that helps stop the loss of their life savings to fraud or theft. Banks and credit unions have begun to notify customers of a Prior Consent form that, when signed by the account holder in advance of a fraud or theft, allows financial institutions to release their customer’s financial records to appropriate authorities in cases of suspected financial exploitation. Financial exploitation occurs when a person acts or fails to act in a way that causes a substantial loss of money to an elder or at-risk adult. Types of financial exploitation include fraud, theft, and theft by caregivers or family members which is commonly obtained through coercion, intimidation or deceit; or through the misuse/abuse of powers of attorney. Financial institutions are often the first place where questionable financial loss is detected. The ability of banks and credit unions to expedite the release of this information to law enforcement or social services agencies allows for quicker intervention. Most importantly, it enables such agencies to stop the loss of funds in the account(s).
Prior Consent forms require the signature of the account holder prior to an actual event or suspicion of financial exploitation. In this sense, the Prior Consent form serves as a preventative measure for which the account holder must voluntarily agree to sign. By signing a Prior Consent form, the account holder waives his/her confidentiality and privacy rights only for the limited purpose of allowing the bank or credit union to notify law enforcement and social services agencies of the fraud or theft. Without a signed Prior Consent form, financial institutions cannot release customer account information. Once signed, authorization under this consent remains in effect until it is revoked by the account holder.
Many older adults will never have to worry about significant losses to fraud or theft. However, with the incidence of financial exploitation on the increase, it is anticipated that such authorization will save older Coloradans millions of dollars. For more information regarding the Prior Consent form, Customers are urged to contact their bank or credit union.
Denver DA’s Fraud Line: 720-913-9179
Thinking in Real Terms
Since the onset of the financial crisis in late 2007, the Federal Reserve has used interest-rate cuts and other policy tools in an effort to fuel economic growth. Economists can debate the effectiveness of these policies, but everyone can agree that today’s low interest rates are a two-sided coin.
Consumers, businesses, and government all benefit from low borrowing costs. But on the other side, savers and investors earn almost nothing on their cash balances. This has been the case in most months since 2008, when the Fed cut short-term interest rates to near zero. Worse yet, investors are actually losing wealth in real terms. The inflation-adjusted yields on short-term Treasury securities have been negative in most months since October 2010. (Nominal yields reflect the stated interest rate, while real yields are adjusted for inflation.)
Earning negative real yields on short-term fixed income is not unprecedented, as shown in Figure 1. In fact, inflation has exceeded nominal interest rates in several post-war periods. This graph plots nominal and real yields of one-month Treasury bills, which are considered the equivalent of cash. The gap between the two lines is the inflation rate.
Figure 1: One-Month Treasury Bills
Nominal vs. Real Yield
April 1953–June 2011
The real (inflation-adjusted) yield is computed using trailing 12-month changes in the Consumer Price Index. Source: Federal Reserve Economic Data
Negative real yields have occurred during periods of high interest rates (early 1980s) and during periods of low interest rates (2010–11). Regardless of the scenario, negative real yields cause investors to lose purchasing power. Keep in mind that the graph shows yields only and not total return, which also would reflect price changes resulting from interest rate movements.
You may note that some negative real yields have occurred during recessionary periods, when the Fed was cutting interest rates to spur a recovery. These times also may be when investors are most tempted to flee the capital markets for the perceived safety of cash. Investors may have a host of reasons for their flight—some might want to avoid economic uncertainty or stock market volatility, while others might fear that impending higher interest rates will cause bonds to lose value.
This is the case for many individual investors and professional money managers today. They are reportedly shifting their portfolios to money market funds and other cash instruments with the intent to return to stocks and bonds when the economy shows signs of improvement.1 The problem with this strategy is that no one can consistently time markets, and the signs are never clear. So while investors sit in cash, their purchasing power quietly erodes.
Investors may have good reasons to hold cash—for example, to keep a portion of their assets liquid. But they should understand that holding cash has a price in real terms. Investors ultimately may lose wealth even as they try to protect it.
Endnote:
1. Jonnelle Marte, “The New Cash Hoarders: Smart or Not-So-Smart?” SmartMoney, June 29, 2011.
Disclaimer:
Past performance is no guarantee of future results.
The information presented above was prepared by Dimensional Fund Advisors, a non-affiliated third party. Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. This material is provided for informational and educational purposes only. It should not be considered investment advice or an offer to buy or sell securities.
The Most Common Frauds and Scams
From the Denver District Attorney’s Office:
As we know, awareness is an important first step toward reducing your exposure to frauds and scams. This list includes warning signs to look for, as well as safeguards to consider:
ID Theft: All personal and financial information such as credit cards, checks and ID’s containing Social Security numbers should be kept in a travel pouch when out and about. Never leave your purse or billfold in your car. Shred all financial documents you wish to discard, and mail bills directly from the post office. Never give out personal or financial information over the phone or through email, unless YOU initiate the contact.
Investment Fraud: Be wary of claims of “guaranteed”, or “high” rates of return, and thoroughly check out all offers. Don’t be rushed into a decision. Make certain the security you’re interested in is registered, and the license of your financial advisor is up to date. Carefully review your financial statements and look for signs of unauthorized or excessive trading.
Sweepstakes, Lottery Scams: Chance winnings don’t just happen – you must “pay to play” a lottery by purchasing a ticket in advance. Likewise, you must enter a sweepstakes in order to win. Beware of any email or call claiming you have won, but must first wire money to cover taxes and fees. The latter is illegal in Colorado.
Door-to-Door Fraud: Never do business with door-to-door contractors who use high pressure, or scare tactics to close a deal. Beware of bargain-price offers on “left-over materials” and don’t let strangers into your home, no matter who they claim to be. City inspectors do not go door-todoor, and reputable businesses have no need to. Always get three bids when considering home improvement work.
Caregiver Fraud: If you, or a loved one receives care from a caregiver, stranger, or family member, or if you have a representative payee, power of attorney or other advisor who manages your finances, insist on receiving copies of all financial statements. No matter how much you know, love or trust a person, never sign documents you have not read or do not understand.
Denver DA’s Fraud Line: 720-913-9179
Phony Debt Collectors Make Menacing Threats
From the Denver District Attorney’s Office:
The Denver area is receiving a rash of phone calls from so-called ‘debt collectors’. In fact, they are con artists alleging that the person owes money on a past debt. They claim to represent a bank or other business, and will harass the victim by continuously calling back. These callers are specifically targeting older persons and are using scare tactics such as the loss of the home, or jail time if the individual doesn’t immediately pay up. There have also been reports of debt collection scams over the Internet –most likely the result of on-line accounts that have been hacked.
Tips on how to protect yourself:
- Never accept any claim from any source without written verification of the debt. Any form received through email is not written verification! By law, a debt collector must mail you a written validation notice within five days of contacting you by phone.
- Never give out personal or financial information to anyone who calls or emails, unless you initiate the contact.
- To eliminate any uncertainty even if you believe the call or email is a scam, call the business in question to check the status of your account. Chances are it is not a company with whom you do business. Also, never trust any telephone number given to you by the caller. Instead, call the customer or accounts department numbers off of a current invoice, or look the number up.
- Qwest customers with land-line phones can report these calls at 1-800-582-0655.
- Even if the debt collection is legitimate, collectors are not allowed to engage in harassing behaviors. See the Colorado Attorney General’s Office website www.ago.state.co.us/CADC/BrochureEnglish.cfm.html for more information.
Denver DA’s Fraud Line: 720-913-9179
Financial Records – What to Keep and When to Toss
From the Denver District Attorney’s Office:
Shredding important documents is one of the most effective ways of insuring that financial information doesn’t end up in the wrong hands. The following is a simple record retention guide that may help to eliminate some of the confusion over how long financial information should be retained (Source: www.bankrate.com):
45 Days
Credit card receipts: Receipts that match up with monthly statements can be shredded, but statements should be kept for seven years if used as documentation on tax returns (see Tax Returns, below):
One Year – Permanently
- Paycheck Stubs: Reconcile paycheck stubs with the W2 form. If there are no errors, pay stubs can be destroyed.
- Bills: Bills can be shredded once canceled checks are returned. For large purchases, bills should be retained indefinitely for replacement value in the event of loss or damage.
- Bank Records: Minor bank records can be shredded after a year, unless used to document deductible tax expenses, such as mortgage payments, or business expenses.
- Retirement and Savings Plan Statements: Quarterly statements from retirement or savings plans should be reconciled with the annual statements, and then can be shredded if there are no discrepancies. Annual statements should be retained permanently.
Seven Years
Tax Returns: Tax returns should be kept for seven years. If the IRS suspects gross under-reporting on a return, they have six years from the time a return has been filed to conduct an audit. If you suspect you have reported in error and wish to amend a report, or if the IRS detects a mistake, they have three years to audit your return. Receipts that accompany a return must also be kept, such as canceled checks and receipts for alimony payments, charitable contributions, retirement plan contributions/statements.
Denver DA’s Fraud Line: 720-913-9179
