Category Archives: Retirement Planning

Ideas to help preserve and grow your money

25 Things You Should Do Before You Die

My Comments: This appeared in a financial planning magazine and really doesn’t need any comments from me. I’d only mess it up.

Well, wait a minute. Years and years agao, before computers, social media and instant messaging, I read that every man should achieve three goals. They were to build a house, father a child and write a book. My book is kinda tiny but I got it done.

By Richard Feloni July 11, 2014

It can be easy to get caught up in the routine of life, doing whatever it takes to get from one point to the next, without doing much that’s exciting or enriching.

Some Quora users offer a few ideas to break the routine in their responses to the thread: “What is something every person should experience at least once in a lifetime?”

The responses range from trying an extreme sport to discovering something life-changing about yourself. We’ve summarized some of the best answers below.

1. Live somewhere vastly different from your hometown.
Living in an unfamiliar setting among people with a different worldview from yours can help you become more self-reliant. —Deepthi Amarasuriya

2. Go out of your way to help a stranger.
Put in time and effort to help someone you have “absolutely no social, moral, or legal obligation to help,” and don’t expect anything in return. —Kent Fung

3. Learn how to appreciate being alone.
Avoid feeling lonely on your own by truly becoming comfortable with yourself. —Barbara Rose

4. Travel without being a tourist.
Go on a trip without feeling the need to take nonstop photos of the biggest tourist attractions. Instead of being a “tourist,” be a “traveler” and try to get an idea of how the locals live. —Arya Raje

5. Take a trip without making any plans.
A “serendipitous adventure” free of the restrictions of an itinerary can be both thrilling and relaxing. —Julian Keith Loren

6. Go paragliding/parasailing/skydiving — anything where you’re flying through the air. The feeling of weightlessness you get is a joy unmatched by anything else in life. —Sainyam Kapoor

7. Learn how to get by on the bare minimum.
If you’re just starting out professionally and fortunate enough to not know a life of poverty, it is worth struggling to make it on your own without the safety net of your family. You’ll learn to appreciate what you earn. —Anonymous

8. Work a service job.
If you’ve never had a difficult job like being a waiter, courier, or janitor, then try volunteering somewhere like a shelter. You’ll learn patience, humbleness, and dependability. —Diego Noriega Mendoza

9. Become comfortable speaking in public.
Public speaking is consistently ranked among people’s top fears, but developing the skill can advance your career and boost your confidence. —Mark Savchuk

10. Participate in an endurance trial like a marathon.
Athletic events like marathons and long cycling races are essentially “voluntary suffering” that can teach you that with enough determination, you can get through anything and appreciate the journey. —Denis Oakley

11. Go scuba diving.
“It is like exploring a completely new world.” —Rajneesh Mitharwal

12. Learn to dance.
Most people are embarrassed to dance at events without the help of some alcohol, but instead of making a fool of yourself at every wedding, learn some real techniques! —Meenakshhi Mishra

13. Run or volunteer for some position of leadership.
You don’t necessarily need to quit your day job and start a senatorial campaign, but you can take a risk and put yourself out there, even if it’s just to become head of your company’s intramural softball team. —Warren Myers

14. Learn to appreciate failure.
Life is filled with defeats and setbacks. You can choose to suffer through each of them until your fortune improves, or you can learn to appreciate the opportunities for learning every failure provides. “It will help you to know yourself — what motivates you, what you did wrong, what makes you happy, and so on.” —Shikhar Argawal

15. Witness the birth of a child.
Seeing the birth of another human being, especially your own child, of course, is something you’ll never forget. —Jack Martin

16. Develop a bond with an animal.
Anyone who has a pet can tell you that the unconditional love you receive from an animal you care for is powerful and increases your overall happiness. —Simon Brown

17. Ride an elephant.
“There’s something incredible about being on top of a majestic animal.” —Ridwa Mousa

18. Drive as fast as you can down an empty road.
Don’t drive recklessly, of course. But if you’re a good enough driver and get a chance to drive down the speed-limit-free German Autobahn, go for it. —Cyndi Perlman Fink

19. Become as good as you can at one sport.
If you make a lifelong hobby of practicing your favorite sport, you will make leading a healthier life fun, challenging, and goal-driven. —Shiva Suri

20. Take a sabbatical from work.
At least once, step away from your professional life to pursue a passion or travel extensively. —Asmita Singh

21. Meditate in a redwood forest.
The massive, ancient trees in California’s redwood forests give you a chance to reflect in untouched nature. “It’s a spiritual and cleansing experience.” —Krystle Smart

22. Fly down a mountain on skis or a snowboard.
Entering a state of extreme focus as you soar down a snowy path can be a euphoric experience. —Pete Ashly

23. Camp in the wilderness hundreds of miles from civilization.
Experiencing what it’s like to live without the luxuries of society will make you appreciate the beauty of nature as well as everything that makes your life easier. —Justin Jessup

24. Perform on stage.
“No matter how stage shy you are and if you don’t know how to sing or dance or act, just get on that stage once. Do your thing and own it. After this, I guarantee you will feel like a whole new person.” —Pritika Gulliani Jain

25. Swim in the “Devil’s Pool” above Victoria Falls in Zambia.
And if you’re a big risk-taker, at certain times of the year you can wade in a slow-moving pool that forms at the lip of the world’s largest waterfall. —Liz Dugas

What is an ILIT? Why Doctors and Business Owners Should Consider Having One

scales of justiceMy Comments: A disclaimer here: I’m not an attorney. But Ike Devji is and I’ve followed him for some time and his writings are relevant and make sense.

I’ve recently been involved in some discussions with physicians and business owners about life insurance. Their questions and criticisms almost universally reflect an ignorance about the topic and frustration that my answers are always preceded by more questions. And then given with caveats and qualifications.

That may be because I’m somewhat cautious in this age of litigation. Or it may be because I’ve seen so many situations go awry that making a truly informed decision, even though it takes longer, simply avoids a lot a pain and heartache most of the time. But Ike’s comments are good ones, so please, pay attention.

Ike Devji on July 1, 2014

We’ve previously devoted a number of discussions to the use of life insurance by physicians and business owners, including a look at how to buy insurance, discussions of its specific uses and how much life insurance a doctor and his or her spouse should have. In this article we take an introductory look at a legal structure that often accompanies life insurance in an estate plan, the irrevocable life insurance trust (ILIT).

What is an ILIT?

It is an irrevocable trust that, for the purposes of our introductory discussion, cannot be changed or amended outside a few very specific exceptions. It is a formal legal structure that should be drafted by a qualified attorney familiar with both estate and gift tax laws. It is specially created to hold life insurance policies, as well as cash and various other valuable assets that may be used to fund policy premiums or managed for other benefit of the named “beneficiaries” — the parties for whom the trust was set up.

The policy may be either purchased by the ILIT outright or later sold or gifted to the trust by the person creating the trust, known as the “grantor.” Finally, the grantor appoints a trust manager who can make discretionary distributions and who helps manage the trust known as a “trustee.” The trustee cannot also be a grantor and, despite the common practice by many estate planners, in my opinion, should not be a beneficiary. In other words, it should be a third party.

What does an ILIT do?

In the majority of cases it’s used for a basic estate-planning reason — to put the proceeds of a large life insurance policy outside the taxable estate of the grantor. This means that the death benefit can be used to either supplement the value of the estate or to help pay any estate taxes that might be due by purchasing illiquid assets that might otherwise have to be sold to pay the taxes, as just one of several examples.

Why can’t a grantor also be a trustee?

We avoid this practice for the reason that is at the core of this column, asset protection, as we do not want a beneficiary who has the power to make discretionary distributions of trust assets to be forced to make a distribution to his or her own creditors. The ILIT provides creditor and principal protection of the assets in the trust (including any death benefit received upon the death of the insured) in several ways:

1. It protects the assets in the trust from estate tax by excluding them from the grantor’s taxable estate.

2. It can protect the cash value and death benefit of a life insurance policy from creditors. Some states protect cash values to a very high, even unlimited, dollar amount, while others do not; a properly drafted trust easily achieves this result.

3. It protects the death benefit and other trust assets from the creditors of the beneficiaries themselves, including future spouses. So, if the beneficiaries of your estate face a future lawsuit, bankruptcy or divorce, this asset will be protected from those exposures or even from the beneficiary themselves if they are minors or have other significant exposures like mental or physical disabilities, addiction problems, or other behavioral issues.

4. It protects present assets intended to go to the beneficiaries, including plain old cash you may intend to fund the policy with now or in the future, from the grantor’s creditors. Said simply, it allows the irrevocable present transfer of assets into a “safe” that the trustee can use to pay for the insurance premiums in the future.

This is a very general introduction to a tool that can be exceptionally complex and is not a recommendation that every doctor or business owner out there needs or is even qualified for an ILIT. As always, a good tool is only “good” if it is a fit for your very subjective goals and needs. We will continue our discussion of this topic in the near future, including a look at how assets in an ILIT can be protected from your creditors and still accessible to you during your lifetime through the use of loans.

(Note: Mr. Devji lives, I think, in the state of Washington. If you want someone local to help you with this, call or email me and I will have local names for you that are excellent attorneys – TK)

Buckle Up! The New Bear Market Has Begun!

1-5-2000-to-6_30-2014My Comments: The writer has a powerful message to send. He was right about this back in 2008 but that doesn’t mean he’s right this time. I have clients and prospective clients asking when the next downturn is going to begin. And yet there are many articles that suggest it’s still a long way off.

This week I received my copy of Investment Advisor. In it five famous advisors share their preferred asset allocation of the month. The most conservative of them has 30% in stocks, 50% in bonds with 20% in cash. The previous month he had 30% in stocks, 40% in bonds and 30% in cash. Clearly, he doesn’t think interest rates are going up soon. The other four had about 65% of their holdings in the stock market.

Another example is an investment manager whose results in 2013 were a plus 17.51%. Rather than moving away from the stocks, he is now fully invested in the stock market to the tune of 120%. (To understand how that works, you need to call or email me.)

PS – I’ve left out the charts since they do not add much to the message other than the one at the top.

Craig Brockle / May. 8, 2014

• This article reveals the convincing evidence that a new bear market has already started.
• Those who failed to sell near all-time highs in 2000 and 2007 have a chance to do it here in 2014.
• Learn the two proven, reliable assets that go up when everything else is going down.

Did you or a loved one lose money in the 2008 Financial Crisis? How about the real estate bubble bursting two years earlier? And if we go back to the turn of the millennium, there was the Dot-com Crash. Remember that one?

This article is intended to help as many people as possible avoid another devastating loss. I will explain where we appear to be in the current economic cycle, what appears to be coming next and how you can protect and grow your money like the top 1% of successful investors.

I’ve done my best to make this article understandable by everyone who reads it, whether you have previous investment knowledge or not. Investment terms, when first introduced have a link to their definition to help aid comprehension. If you see something you don’t understand, a Google search of the word + definition can help.

Before we go any further, observe what the above-mentioned financial events look like on a graph. First, we’ll look at the 2006 real estate bubble. Shown below is the past 20 years of home price data based on 10 US cities.

Up until 2006, the consensus was that real estate only goes up in value and that one’s home was a great investment. By 2009, this belief was proven to be utterly false as foreclosures and short sales became widespread.

There is a great deal of evidence that suggests the real estate market is again poised for a significant drop, but explaining that would be an article of its own. Perhaps after reading this article, you’ll agree that the next financial bear market has indeed begun. If so, you will likely conclude that owning real estate through this period will be hazardous.

Now let’s look at the overall US stock market over the past 20 years as represented by the S&P 500 index in the chart below. This shows the S&P 500 from 1994-2014. (at the top is the S&P from 2000-2014)

If a picture is worth a thousand words, I believe the above chart could be worth 30-60% of your current investment portfolio. That is if you fail to recognize the pattern that’s developed and act accordingly, you could stand to lose that much money.

It’s been over five years since the last bear market bottomed and many investors have forgotten what it was like. The following short clip from CBS 60-Minutes titled “The 401k Fallout” will remind you what average investors were experiencing at the time. Those who cannot learn from history are doomed to repeat it.

Now, let me give at least one reason why you might want to listen to me. After all, there are so many conflicting opinions and obviously not everyone can be right. I’m the first to admit that the market has a mind of its own, which no one, including myself can accurately predict at all times. That said, I went on the record in late 2007 with this YouTube video warning viewers to prepare for the upcoming market crash. That video was released the exact month the S&P 500 index peaked, after which it dropped 57%.

After the real estate bubble collapsed in 2006, it became obvious to my contrarian colleagues and me that it would have a spillover effect into the rest of the financial world. There were other telltale warning signs at that time that I’ll explain below as these signs are giving the same message today.

By October 2007, the S&P 500 index (500 largest US companies) was the focus of attention as it set a new all-time high that month. Meanwhile, the Russell 2000 index (2,000 of the smallest publicly-traded US companies) had already been in a bear market for three months, after peaking in July of that year. This is a sign of stock market exhaustion where only a smaller group of stocks continue to push higher while the overall pack falls off. You could picture this as a huge pack of companies climbing a wall. By the end of it, the overwhelming majority were already in their descent while only the biggest companies inched higher.

Today we’re seeing the exact same thing as the Russell 2000 has again been showing obvious signs of weakness, even though the S&P 500 has been revisiting its all-time highs. The Russell 2000 Index Peaked at 1,213 on March 4, 2014.

Another warning sign that a new bear market has begun is courtesy of the volatility index (VIX). In finance, volatility is a measure of the variation of stock prices over time.

Volatility, investor emotions and stock prices are all very closely related. In periods when volatility is low and investors are feeling complacent or even euphoric, we experience high stock prices. Conversely, when stock prices collapse and fear becomes widespread, we see volatility spike much higher.

Volatility measures can be a very early warning signal. For instance, in the last financial crisis, volatility began to rise seven months before the bear market in the Russell 2000 began and 10 months before the S&P 500 started its decline.

Taking a look at volatility in the current cycle, we see that it reached its lowest point on March 14, 2013. Since then volatility has been in an uptrend, setting a consistent pattern of higher lows. This time around, it has taken the Russell 2000 almost 12 months to peak, hitting its high on March 4th of this year. I suspect the S&P 500 will make at least one last push higher, at least above 1900. This would also help fool more people into believing that there’s nothing to worry about when they should actually be most concerned.

Other warning signals are currently blaring today as they did in 2007. These include stocks being extremely overpriced, selling by the most experienced investors and heavy buying by the least informed, the general public. Let’s look at each of these factors briefly.

Adam Hamilton, a contrarian colleague of mine, recently published an excellent article. In it he points out that as of this year, stocks are more overpriced than they were prior the 2008 financial crisis. In case you’re unfamiliar, the value of a stock is determined by comparing a company’s current stock price to how much profit it earns. This is referred to as a price to earnings ratio. For instance if a stock is currently priced at $10 and has earned a profit of $1 over the past year, the stock would be said to have a price to earnings ratio of 10.

Over the past 125 years, the average price to earnings ratio has been 14 for the largest 500 companies in the United States. Prior to the 2008 financial crisis, these same stocks reached peak price to earnings ratios of 23.1. As of the end of March of this year, the average price to earnings ratio for these same 500 stocks was 25.7. This indicates that even if corporate profits were to remain constant, that stock prices would need to drop 45% just to reach their historical average of 14.

Furthermore, we’ve recently seen a significant increase in insider selling of stocks combined with heaving buying by the general public. Insiders include directors and senior officers of publicly traded companies, as well as anyone that owns more than 10% of a company’s voting shares. Insiders are among the most knowledgeable and successful investors as they have such strong understanding of what’s really going on in their company and industry. When insiders are selling, it’s usually wise to take notice. Insiders are among the top 1% of successful investors and act more on logic rather than emotion.

Lastly, we have the average investor. We could refer to them as the other 99%, based on their sheer numbers. These are the least informed investors and have the worst track record. This group tends to react emotionally rather than rationally at major turning points in the market. This is evidenced by the fact that the heaviest selling of stocks by the general public occurred in the first few weeks of 2009. This was right before the last bear market transitioned into one of the strongest bull markets in history.

Recently there hasn’t just been strong buying by the general public, but they have been borrowing more money to buy stocks than they ever have. As always, knowledgeable insiders, commercial traders and contrarian investors are unloading their positions near the current all-time highs to an unsuspecting public that really should know better by now-especially after what happened in 2000 and 2007. Here we are in 2014, another seven years later and it is again time to prepare for another bear market.

While no one, including me, likes to live through difficult economic times, at least we all have a choice as to how we are affected. There are truckloads of lemons coming our way, so I think we’d best get started making lemonade. And while we’re at it, help as many other people as possible do the same.

In crisis, we find both danger and opportunity. Reportedly, there were more millionaires created during the Great Depression than any other time in American history. And that’s back when a million dollars was worth many times what it is today. A million dollars in the Great Depression would be worth over $35 million today.

So, what is one to do? How can you avoid becoming road kill and instead conquer the crash? Fortunately there are proven, reliable ways to protect and grow your money in a bear market. Below are the two best assets I know for doing so.

The first chart shows the US Treasury fund (TLT) rise as the US stock market fell. The period shown is the 2008 financial crisis. When investors panic, they sell everything they can and put their money in something they consider reliable. This is called a “flight to safety” and US Treasury bonds are considered one of the safest assets during times of trouble.

Based on the information in this article, I hope you too realize that a new bear market has begun. Volatility bottoming last year was the first warning signal. More recently we’ve seen the Russell 2000 run out of steam, corporate insiders selling and the general public buying in droves. On top of this, stocks are more overvalued today than they were at the peak in 2007.

My goal in writing this article is to help you and as many other people as possible avoid another devastating financial loss. My 2007 YouTube warning reached over one hundred thousand viewers. This time I’m hoping that millions of people are able to get this message in time. I appreciate you following me here on Seeking Alpha, leaving your comments and sharing this article with others.

Bear markets are not to be feared. In fact, they can be very profitable for those who are well prepared. Buckle up. This is going to be one heck of a ride!


US Cable Barons And Their Power Over Us

Internet 1My Comments: Professionally, I live in the world of finance and investments. Regulation is pervasive, most likely increasing, since there is a pervasive threat of abuse by the big players. I think it would help all of us to have a level playing field, including individuals, corporate America, and society as a whole.

I cannot run my business today without the internet. My predecessors couldn’t run their businesses without newspapers and telephones. Over the years, no one had a problem keeping those industries from being dominated by a few companies who just might become monopolies.

So why is Congress apparently willing to let Comcast become a virtual monopoly without restriction?

By Edward Luce | April 13, 2014 | The Financial Times

No one in Washington seems to have the will to stop industry moguls from tightening their grip on the internet.

Imagine if one company controlled 40 per cent of America’s roads and raised tolls far in excess of inflation. Suppose the roads were potholed. Imagine too that its former chief lobbyist headed the highway sector’s federal regulator. American drivers would not be happy. US internet users ought to be feeling equally worried.

Some time in the next year, Comcast’s proposed $45.2bn takeover of Time Warner Cable is likely to be waved through by antitrust regulators. The chances are it will also get a green light from the Federal Communications Commission (headed by Tom Wheeler, Comcast’s former chief lobbyist).

The deal will give Comcast TWC control of 40 per cent of US broadband and almost a third of its cable television market.

Such concentration ought to trigger concern among the vast majority of Americans who use the internet at home and in their work lives. Yet the backlash is largely confined to a few maverick senators and policy wonks in Washington. When the national highway system was built in the 1950s, it provided the arteries of the US economy. The internet is America’s neural system – as well as its eyes and ears. Yet it is monopolised by an ever-shrinking handful of private interests.

Where does it go from here? The probability is that Comcast and the rest of the industry will further consolidate its grip on the US internet because there is no one in Washington with the will to stop it. The FCC is dominated by senior former cable industry officials. And there is barely a US elected official – from President Barack Obama down – who has not benefited from Comcast’s extensive campaign financing. As with the railway barons of the late 19th century, he who pays the piper picks the tune.

The company is brilliantly effective. Last week, David Cohen, Comcast’s genial but razor-sharp executive vice-president, batted off a US Senate hearing with the ease of a longstanding Washington insider. A half smile played over his face throughout the three-hour session. One or two senators, notably Al Franken, the Democrat from Minnesota, offered skeptical cross-examination about the proposed merger. But, for the most part, Mr. Cohen received softballs. Lindsey Graham, the Republican from South Carolina, complained that his satellite TV service was unreliable when the weather was bad. Like many of his colleagues, Mr. Graham either had little idea of what was at stake, or did not care. With interrogations like this, who needs pillow talk?

Comcast is aided by the complexity of the US cable industry. Confusion is its ally. The real game is to control the internet. But a lot of the focus has been on the merger’s impact on cable TV competition, which is largely a red herring. The TV market is in long-term decline – online video streaming is the viewing of the future.

Yet Comcast has won plaudits for saying it would divest 3m television subscribers to head off antitrust concerns. Whether that will be enough to stop it from charging monopoly prices for its TV programmes is of secondary importance. The internet is the prize.

The public’s indifference to the rise of the internet barons is also assisted by lack of knowledge. Americans are rightly proud of the fact that the US invented the internet. Few know that it was developed largely with public money by the Pentagon – or that Google’s algorithmic search engine began with a grant from the National Science Foundation. It is a classic case of the public sector taking the risk while private operators reap the gains. Few Americans have experienced the fast internet services in places such as Stockholm and Seoul, where prices are a fraction of those in the US. When South Koreans visit the US, they joke about taking an “internet holiday”.

US average speeds are as little as a tenth as fast as those in Tokyo and Singapore. Among developed economies, only Mexico and Chile are slower. Even Greeks get faster downloads.

So can anything stop the cable guy? Possibly. US history is full of optimistic examples. Among the dominant platforms of their time, only railways compare to today’s internet. The Vanderbilts and the Stanfords had the regulators in their pockets. Yet their outsize influence generated a backlash that eventually loosened their grip.

For the most part, electricity, roads and the telephone were treated as utilities and either publicly owned, or regulated in the public interest. The internet should be no exception. Much like the progressive movement that tamed the railroad barons, opposition to the US internet monopolists is starting to percolate up from the states and the cities. It is mayors, not presidents, who react to potholed roads.

Last week, Ed Murray, the mayor of Seattle, declared war on Comcast even though it donated to his election campaign last year. Drawing on the outrage among Seattle’s consumers, Mr. Murray seems happy to bite the hand that fed him. “If we find that building our own municipal broadband is the best way forward for our citizens then I will lead the way,” he said.

Others, such as the town of Chattanooga, Tennessee, which is distributing high-speed internet via electricity lines, are also doing it for themselves. Forget Washington. This is where change comes from. “We need to find a path forward as quickly as possible before we [the US] fall even further behind – our economy depends on it,” said Mr. Murray. As indeed does America’s democracy.

3 Retirement Planning Essentials to Understand

retirement-exit-2My Comments: I’ve now reduced retirement years to three types of years. They are “go-go”, “slow-go” and “no-go”. Planning for them before you reach retirement is a matter of attempting to get as many $ in the pot as possbile.

After that, it’s a timing issue that is driven by health, the expected life style, and the nature of your bucket list. Plan to spend more in the “go-go” years than you will in the “slow-go” years and they dry up in the “no-go” years.

by: Rachel F. Elson / Financial Planning / Monday, June 9, 2014

HOLLYWOOD, Fla. — Longevity increases and cultural shifts have changed the way Americans plan for retirement — and advisors need to make sure they’re keeping pace.

That was the message from Lena Rizkallah, a retirement strategist at J.P. Morgan Asset Management, at the Pershing Insite conference here on Thursday.

A generation ago, said Rizkallah, the mantra was “be conservative” — whether in lifestyle or in investment decisions. “Now, though, boomers have a bucket list,” she said. “They want to retire in good condition financially but also have goals for themselves.”

That changes some of the calculus for advisors said Rizkallah, who joined Elaine Floyd, a director of retirement and life planning at Horsesmouth, for an energetic discussion of retirement planning.

Among the recommendations they made:

1. Make sure clients have a retirement plan.

“I call this the heart attack slide,” Rizkallah said, posting a chart that mapped a client’s age and current salary against retirement savings benchmarks. “It helps clients gauge where they are.”

She encouraged advisors to talk frankly about both saving rates, for those still in the workforce, and spending plans. In general, she said, spending tends to peak at age 45, then decline in all categories except health care.

But she added a big caveat: “Note that housing continues to be 40% of spending. … More people are entering retirement with a mortgage.”

2. Know the threats to a secure retirement.

Rizkallah outlined three big risks for retirees.

Outliving life expectancy. Remember, she cautioned, that as we age our life expectancy gets longer. There is now a 47% chance that one spouse in a 65-year-old couple will live to 90,” she said, pointing out that the likelihood had increased even during the last year.

Not being able to keep working. People may think they’re going to bolster their retirement plan by working longer, but not everyone can control the timing, Rizkallah said, citing such issues as poor health, family care needs, and layoffs and other workplace changes. “There is a disparity between people’s expectations and the reality,” she said, encouraging advisors to tell clients: “You want to keep working? Great. But don’t make that part of the plan.”

Facing higher costs of health care. Costs continue to rise, she pointed out, adding that there’s a lot of uncertainty around future costs. “It’s really crucial to have this conversation,” she said. “Say, ‘Because we’re seeing this, let’s talk about saving, let’s talk about diversifying.’”

3. Do the math on Social Security.

It’s critical that advisors understand — and are able to communicate to clients — the real impact of delaying Social Security benefits, Floyd told listeners.

She cited as an example a maximum earner who turns 62 this year, noting that if the client takes Social Security at 62, he or she will have collected $798,387 by age 85. But by deferring until age 70, that same client will have $1,035,653 by 85. If the client lives to 95, Floyd added, the deferral would have a more than $600,000 payoff.

Other Social Security nuances are important as well, said Floyd, who received the lion’s share of questions during the Q&A period at the end of the panel. “We are getting lots of questions about the earnings test … which suggests that people are continuing to work and filing for Social Security” — something she said clients “just shouldn’t do.”

Advisors should understand whether their clients are eligible for spousal benefits, whether and when clients can change their minds and undo a Social Security election, and how to maximize benefits for a surviving spouse. That last part gets particularly tricky given boomers’ penchant for divorce, Floyd added: “Social Security rules can get really complicated when there are multiple divorces.”

The Paradox of Investment Risk

profit-loss-riskMy Comments: First, let’s both understand we are talking about financial risk. Second, financial risk for me is likely to be defined differently from how you define it. Third, there is always an element of uncertainty about any future outcome, whether it’s getting married, having children, accepting a new job, etc. Uncertainty implies a potentially unfavorable outcome for almost anything we do, but to the extent it is “risky” depends on our frame of reference.

For example, walking along the roofline of my house, at age 73, is much riskier for me that it might be for someone age 22, who is a chamption gymnast. Mind you that’s physical risk and not financial risk, but there are parallels when it comes to money.

I’ve just taken a step that caused me to reflect very carefully because it has caused me to trust someone to do something with my money that I personally cannot replicate. For me, I had to come to terms with the “risk” involved because it’s something I can’t do. The person who I’m trusting has done this successfully for the past 35 years. For him, it is considered safe and conservative. Only I don’t “know” that, so there is an element of risk involved.

by: Franklin J. Parker / Tuesday, June 17, 2014

Like most retail financial advisors, I have thought a lot about how to reduce both actual risk and the perception of risk in my client’s portfolios. Since 2008 we have all thought, rethought, written and rewritten about risk.

I focus on financial planning to help clients understand why they are investing. I have had discussions about why portfolio allocation helps to protect clients; I’ve used all the financial metrics and Monte Carlo simulations. But no matter the conversation, it seems that clients see themselves forever in danger of falling off a 1,000-foot cliff — a fall they feel is one small misstep away.

And this, to me, is the real problem with the current wealth management paradigm. We do hours of financial planning work: calculating different saving scenarios, market returns and retirement dates. But when it comes time to actually construct a portfolio, we give the client a risk-tolerance questionnaire that is entirely unrelated to their financial planning needs.

What if a client scores very conservatively on the questionnaire but actually needs a more aggressive portfolio? Or vice versa? To not use the financial planning process to directly inform the investment management process makes no sense to me. Well, actually it does.

Let’s be honest: As an industry, planners continue to use risk-tolerance questionnaires because they are defensible in court. But these do the client a disservice; they let advisors avoid the real conversations our clients need.

We must ask clients which competing risks they are willing to accept: Are you willing to accept the risk of not retiring on time? If not, are you willing to take on more portfolio risk? That is the proper role of a risk-tolerance questionnaire: to inform the conversation about risk, but not to dictate it.

It is an easy thing to calculate the return requirement of a future goal. It seems sensible to assign a portfolio allocation that has the best likelihood of achieving that goal. And, taking this idea a step further, it is not a hard thing to figure out the maximum loss a portfolio can sustain before a plan gets derailed. You can even dust off the old stop-loss tool to help limit the risk of those catastrophic losses.

Using such a process might help give clients context, and a better sense of the risks they are actually willing to take. By assigning a loss threshold coupled with some hedging strategies (even as simple as stop-losses), we can help clients better understand which losses are tolerable and which are not.

This may be the point. As retail advisors, it is our job to keep clients rational and on track. With some safety nets, we may be able to help clients stay rational and not fear that 1,000-foot cliff so viscerally.

Franklin J. Parker is managing director of CH Wealth Management in Dallas.

Want to Increase Hospital Revenues? Engage Your Physicians

My Comments: Keeping more of what you earn resonates with a lot of people. I recently found a newly minted idea that dramatically increases ones ability to keep more of what you earn. It dovetails with this post about physicians. But it is not limited to physicians and hospitals, but to virtually any successful small business owner. It’s quick, its easy, it passes muster with the IRS and if you are intrigued by what this might mean for you, get in touch with me.

by Jeff Burger and Andrew Giger / June 05, 2014

When doctors are frustrated, patient care and hospital revenues suffer. Here’s how to boost physicians’ engagement — and the bottom line.

Four key practices consistently drive physician engagement.

Physician burnout is on the rise. About four in 10 physicians reported feeling dissatisfied in their medical practice (42%), according to research by Jackson Healthcare.

Many feel that regulatory and reimbursement restraints inhibit their medical practice. The volume of time spent on paperwork also disconnects doctors from their patients, potentially compromising patient care. As private practice becomes increasingly associated with administrative hassles and overwhelming overhead, more physicians are leaving medicine altogether or choosing to become hospital employees.

When physicians feel frustrated and inhibited in their medical practice, both patient care and hospital revenue suffer. But there are steps any hospital can take to engage its physicians, whether they are employed or affiliated. And making those changes can have a significant and positive impact on patients and the hospital’s bottom line.

Engaging physicians
As one health system began employing more physicians, it contacted Gallup to discover how to engage them. After collecting data from the health system and assessing physician engagement, Gallup differentiated physicians with emotional equity in the health system from those who did not buy in — and discovered a strong relationship between physician engagement and productivity.

Gallup found that physicians who were fully engaged or engaged were 26% more productive than physicians who were not engaged or who were actively disengaged. This increase equates to an average of $460,000 in patient revenue per physician per year. In other words, this health system could improve its bottom line by nearly half a million dollars a year each time it successfully engages one of its less engaged physicians.

Another health system recently sought Gallup’s help in building engagement among community physicians with referral privileges. After collecting data and analyzing physician engagement, Gallup again differentiated physicians who had confidence and emotional equity in the health system from those who didn’t.

When comparing this system’s physician engagement data with referral volume, Gallup found that fully engaged and engaged physicians gave the hospital an average of 3% more outpatient referrals and 51% more inpatient referrals than physicians who were not engaged or who were actively disengaged. By implementing strategies to connect with and engage community physicians, this provider could drive revenue and encourage corporate growth.

Engagement and the bottom line
Gallup’s analysis in these two studies suggests that four key practices consistently drive physician engagement:
1. Proactively address and provide solutions for physician problems, especially those related to health reform changes.
2. Promote effective communication between physicians and system administrators.
3. Encourage physician involvement with hospital administration, and ensure physicians’ opinions are heard.
4. Go above and beyond to give physicians opportunities to grow professionally and learn from more experienced physicians.

For example, hospitals could promote their physicians’ expertise by publicizing them as speakers in their community or by providing new physicians with a mentor.

By strategically and consistently applying Gallup’s strategies for building physician engagement, hospital leaders and executives can capitalize on opportunities to grow relationships with employed and affiliated doctors. Improving physician engagement not only leads to increased hospital revenue from higher physician productivity and referral, but it also ultimately promotes higher quality patient care.

How Will The Federal Reserve Raise Interest Rates?

house and pigMy Comments: There is little argument that sooner or later the Fed will start to push interest rates up. And when they do, there is going to be confusion about how fast and how far they push. This in turn will cause some volatility and timing issues on Wall Street.

But all this is part and parcel of being a democracy in a capitalistic world. It’s how you manage the movements that separates the survivors from those who will die. If you have money with me, you’ve heard me talk about this ad nauseum. But that’s what I do, so if you have more questions, you know how to find me.

(Unrelated to any of this is our recognition that 70 years ago today, many brave men landed ( and died ) in France to evict the Nazis. My father landed on Dday plus 3, with the British forces. He was in charge of the recovery of all German field equipment; tanks, guns, etc for analysis by the British Army.)

John M. Mason / May. 30, 2014

• The Federal Reserve continues to taper its security purchases.
• Within the Fed further discussions are taking place with respect to how interest rates might be raised in the future.
• The Fed has already been experimenting with the use of reverse repurchase agreements as a tool to smooth the transition to a “more normal” functioning of the banking system.

This is a question that Robin Harding briefly examines in the Financial Times. The concern is growing… and will continue to grow in the coming months.

As reported in the article, the Fed “debated these tools at its April meeting and instructed the New York Fed to step up tests on a range of experimental facilities.”

The Federal Reserve is looking at “tools” to raise interest rates because the financial markets are not experiencing enough demand for funds relative to the supply of funds to warrant increases in interest rates.

Although the effective Federal Funds rate, the interest rate the Fed targets for executing monetary policy, has been as high as 20 basis points during the time the central bank has been exercising its efforts of Quantitative Easing, over the past year the effective Federal Funds rate has fluctuated around 10 basis points.

On May 28, 2013 the effective Federal Funds rate was 9 basis points and on May 28, 2014 the effective Federal Funds rate was 9 basis points. In between the rate got as high as 12 basis points and as low as 6 basis points, but it never got outside of this range.

There is essentially no demand pressure on the effective Federal Funds rate to rise. Usually at this time in the business cycle, almost five years and counting, the demand pressure in the market is causing money market interest rates to rise.

Not this time! And, why should interest rates rise? The commercial banking system has almost $2.7 trillion in excess reserves, on which reserves member banks are receiving a risk-free 25 basis points. Certainly better than making risky business loans or risky mortgage loans where the spread the banks earn are not a whole lot better than this 25 basis points. Plus, the banks don’t have to put up with the criticism of regulators about the loans that they are making.

So why should the commercial banks be lending?
The point of the Harding article seems to be that if short-term interest rates are going to rise in this extremely weak business recovery, it is going to have to be the Federal Reserve that causes the interest rates to rise.

Not a lot is going to happen, however, in the current environment as the Federal Reserve continues to “taper” its monthly purchases.

Over the last four-week period ending May 28, 2014, the Federal Reserve added a “net” $35.7 billion to its securities holdings. This is consistent with what it said it was going to be doing.

This increase is “small potatoes” compared with the “net” acquisitions over the past 52-week period, which was almost $950 billion.

One should note that this “net” amount of new securities added to the Fed’s portfolio was a little greater than the whole Fed balance sheet before the financial crises began.

But the Fed, over the past year, has been practicing its “exit” moves in the repo market. Harding reports that the most practical method of raising the effective Federal Funds rate is what it calls the “Overnight Fixed-Rate Reverse Repurchase facility”…or, ON RPP.

Well, as I have reported over the past four months, the Fed has been executing Reverse Repurchase Agreements. One must be careful with this title because the reverse repurchase agreements must be interpreted from the side of the government securities dealer and not from the side of the Federal Reserve.

The Federal Reserve is selling securities to a government securities dealer under an agreement to repurchase the securities at a given future date under a set price. By selling the securities the Federal Reserve “reduces” bank reserve balances.
The objective of these “reverse repos” is to reduce the bank reserves that are in the banking system and this could cause interest rates to rise.

At the close of business on May 28, the Federal Reserve had over $170.0 billion in reverse repurchase agreements on its balance sheet. On May 29, 2013, the Fed did not show any reverse repurchase agreements on its balance sheet. Over the past 13-week period the Fed added slightly more than $40.0 billion in reverse repos to its balance sheet so it is obvious that this exercise has been going on for a fairly lengthy time.

In terms of what is happening in the monetary statistics, the same old story applies that I have been reporting over the past four years. Demand deposits at commercial banks are continuing to rise at a fairly rapid rate — they are up almost 16.0 percent from last year but this increase in demand deposits is not coming from lending activity in the commercial banking system.

The major reason that demand deposits are increasing so rapidly is that individuals and businesses are still transferring funds for low-yielding short-term assets into demand deposits. As I have argued before, this is not a sign of strength in the economy, but an indication of the weakness that still exists. Of course, people and businesses are receiving next-to-nothing in interest rates on their “savings” but it is also true that because of the sorry economic state of so many economic units, these economic units want to keep their funds ready for spending, so they keep moving funds to “transactions” accounts.

Furthermore, the rate of increase in currency holdings continues to be historically high. Year-over-year, the rate of growth in currency in the hands of the public is almost 8.0 percent.

Small deposits at commercial banks and thrifts are down, year-over-year, at a 12.0 percent rate. The growth in retail money funds is basically non-existent for the past year and the growth in money in institutional money funds is down for the year.

So, “tapering” continues and officials at the Federal Reserve wonder how they are going to raise interest rates in the future when the time is right. And there still is the major question of what the Federal Reserve is going to do with the $2.7 trillion excess reserves in the banking system.

The answers to all these questions are crucial to the future of the United States economy. That is why it is important to keep a close watch on what the Federal Reserve is doing… and what its officials are thinking. Again, we are in completely new territory.

3 Reasons The Current Equities Market Is Exhausted

profit-loss-riskMy Comments: Many of my clients are asking how come their investments are not as exciting as what they hear on TV these days. And my standard answer is that exciting comes in two flavors, great and frightening.

For the most part, I’m trying to help them avoid the frightening part. For many years I followed what we now call a strategic approach to investments. This is when you pick out good stuff to be invested in and then simply leave it alone. If the markets move up, you get to participate, but when they go down, you also get to participate.

The alternative is a tactical approach. This is where you accept the fact that you will only capture some of the upside, but you also capture less of the downside. In fact some programs I have not only avoid capturing the downside, but actually make money when all around are losing money.

The dilemma is that the noise from TV and the media and magazines helps you forget and overlook the panic that always happens from time to time. Which is why it’s hard to make sense of falling behind your friends when they tell you excitedly their investment in X was up 25% last year.

For every article that tells you the world as you know it is about to end, there are articles that tell you it’s not. Here are 3 reasons to be cautious over the next several months. If you want to see the charts, you’re going to have to go to the source, which is HERE.

May. 29, 2014 3:44 PM ET

With the S&P 500 hovering near record highs, is the market over-bought? Here are three reasons to be cautious when making new equity purchases.

Shiller CAPE 10 Ratio:
The current CAPE 10 ratio at 25.7 is significantly higher than its mean value of 16.5. When the ratio value moves above 20 it is time to become wary of the equity market. Even a value over 25 is not conclusive evidence the market will not move higher as investors in the late 1990s will remember. However, the probability of significant upward market movement diminishes as the CAPE 10 ratio continues to rise.

Bullish Percent Indicators: A second warning signal comes from Point and Figure graphs for hundreds of stocks that make up the important U.S. market indexes. The following table shows the Bullish Percent Index (BPI) percentages for seven major U.S. Equities markets. Markets that reflect large-cap stocks are all priced in the over-valued range or 70% and above. Those indexes are: S&P 100, S&P 500, DJIA, and DJTA. The New York Stock Exchange (NYSE) dipped below the 70% zone last April. Smaller-cap stocks are not showing the same strength as large-cap stocks, another signal the current equities market is beginning to falter.

Going back to 2013, it is apparent that these major markets can remain in the overbought zone for many months. The question is, how long can the bull market continue without a 10% to 15% correction?

Cluster Weighting Momentum Analysis: The third reason the current stock market appears to be tired is not as straight forward as the first two indicators. Cluster Weighting Momentum (CWM) requires digging deeper into the weeds of security analysis. The first move requires developing a list of ETFs that cover all major U.S. Equity asset classes, an array of bond and treasury ETFs, developed international markets, emerging markets, domestic and international REITS, international bonds, precious metals, and commodities. In other words, the global market is included in the list of ETFs [one stock, Berkshire Hathaway (BRK.B) is included] selected to make this point.

Once the ETFs are selected, we run what is known as a Cluster Weighting Momentum analysis to see which areas of the global economy are performing best. After ranking the ETFs using three metrics, we then “cluster” the ETFs based on a correlation cutoff. A correlation cutoff of 0.5 was used in this example. We are attempting to find the best performing ETFs that have low correlations.

This list of ETFs are ranked based on the most recent three-months’ performance, six-months’ performance, and volatility. Percentages are assigned to each variable and a semi-variance calculation is used to determine volatility. The rankings are shown in the following table.

Check where the U.S. Equities ETFs show up on the list and you will observe they are not high on the list, particularly mid- and small-cap growth, VOT and VBK respectively. ETFs that rank high are bonds, dividend generators, REITs, Treasury, and emerging markets.

Correlation Results: ETFs from the above table are next run through a correlation analysis using 0.5 as the correlation cutoff. The cluster diagram is too large to be shown in this article, but the results are presented in the following table.

The top performing ETFs with correlations below 0.50 are: VNQ, DBC, RWX, BWX, PCY, TLT, BRK.B (Yahoo codes it BRK-B), DBA, IDV, and UNG. Not one of the “Big Seven” U.S. Equities ETFs made the list and they are: VTI, VTV, VOE, VBR, VUG, VOT, and VBK. Instead, we see three commodities (DBC, DBA, UNG), REITs (VNQ and RWX), and bonds-treasuries (BWX and TLT). BRK.B is the closest we come to the U.S. Equities market.

Will the broad U.S. Equities market move higher? That is an unknown, but the three signals listed above place a low probability we will see significant improvement over the next four to six months. It is time to be a cautious investor.

Could Obamacare Prompt You to Retire Early?

healthcare reformMy Comments: Retiring early is a desired goal for many people. For one thing, they really don’t like what they do, and two, they think they have either enough money or time to fill their lives.

I planned to retire at 65, which seemed sort of normal. But then came the crash of 2008. It was a perfect storm for us and yet we survived financially. But then came a health issue, now resolved, but it caused me to give up golf, which is what was supposed to help fill my time.

So I decided to go back to work, doing what I know how to do, and have enjoyed for the past 40 or so years. It had nothing to do with ObamaCare, so the title of this post is a little misleading. But now that the Affordable Care Act is here and is not going to go away, adjustments are being made by lots of people. Maybe even you.

By Jay MacDonald | May 28, 2014

While Americans remain deeply divided on the merits of the Affordable Care Act and skeptical about health insurance exchanges, they’re receptive to Obamacare provisions that could free them to change jobs or retire early, according to the latest Bankrate Health Insurance Pulse survey.

Four years after its enactment, health care reform still faces a public relations challenge: 43 percent of survey respondents rate the ACA’s impact so far as mostly negative, while 28 percent consider it mostly positive.

Confusion at the heart of hard feelings?

Tim Jost, a health law professor at Washington and Lee University School of Law in Lexington, Virginia, attributes the divide to widespread public confusion about a law that has little direct impact on the many Americans who are insured through their employer. That, he says, has led some to blame a host of unrelated ills on Obamacare.

“A very large proportion of the American population is misinformed as to what’s in the Affordable Care Act,” Jost says. “So when they see that their premiums are going up, their employer contribution is going down, their cost sharing is going up and their employers are thinking about defined contribution plans, the natural tendency is to blame all of that on the Affordable Care Act.”

He adds: “But all of that happened largely outside the Affordable Care Act and would have happened anyway.”
What kind of impact do you think the Affordable Care Act has had on the country so far?

• Of respondents earning $50,0000 a year or more, 53 percent feel Obamacare has mostly been bad for the country, compared to just 29 percent of those making less than $30,000.
• Fifty-four percent of Democrats feel the Affordable Care Act’s impact has been mostly positive, while 24 percent of independents and just 8 percent of Republicans would say that.
• Slightly more than half (51 percent) of rural Americans give Obamacare a thumbs-down, 46 percent of suburbanites are in that same “mostly negative” camp and just a third (33 percent) of urban dwellers feel that way.
• If you are currently insured through work and could get affordable health insurance not linked to your job, would that make you more or less likely to retire early, or would it make no difference?
• Of those earning between $50,000 and $75,000 per year, 37 percent say they’d be more likely to retire early, compared to 22 percent of higher-paid respondents and 19 percent of the lowest-paid respondents.
• Thirty-three percent of Democrats with employer-based coverage say they’d be more inclined to retire early, versus 23 percent of those who identify as independents and just 14 percent of Republicans.
• Among parents, 13 percent say they’d be less likely to leave the workforce early, compared with 5 percent of those without children younger than 18.

Editor’s note: Percentages may not equal 100, due to rounding.

The insured don’t see anything for them

Jonathan Oberlander, professor and vice chair of social medicine and health policy at the University of North Carolina-Chapel Hill, says the focus on enrolling the uninsured may have left many of those who are not in that camp out of the loop.

“The findings show two things: how deeply set many views are about Obamacare, and that the administration has been unable to persuade the insured that Obamacare is in their interest and that they have much to gain by it,” he says.

“The public relations battle is proving harder than the operation, and the operation is not easy.”

Obamacare and early retirement
When the survey turned to the issue of “job lock,” in which workers cling to a job for its health plan, feelings toward health insurance reform suddenly seemed to improve.

By nearly 3-to-1 (23 percent to 8 percent), insured Americans said they’d jump at the chance to change jobs or retire early if they could get affordable health care that was not employer-based, one of Obamacare’s core offerings. However, nearly two-thirds of those surveyed (65 percent) didn’t think it would affect their decision either way.
“It’s interesting that a quarter of the population thinks that it’s a significant issue, because I really believe it is,” Jost says.

Some may ultimately decide to keep working
An estimate earlier this year from the nonpartisan Congressional Budget Office said the availability of health insurance via the Affordable Care Act could cause the equivalent of 2.5 million workers to leave the labor force. “That’s going to have a major impact on productivity, innovation and entrepreneurialism,” says Jost.

But Oberlander cautions that the higher premiums and out-of-pocket costs in the exchange’s health plans available to older Americans may not make early retirement a no-brainer.

“The reality is, when they actually look up the health insurance policies that they are qualified for, what it covers and how much it costs, they would probably stay with their jobs,” he says.

Health exchanges get shrugs
If Americans seem entrenched in their perceptions about Obamacare, they are less so in their impressions of the new health exchanges, the online marketplaces ushered in nationwide by the law.

While those who dislike the idea of being forced to shop for health insurance through an exchange outnumber those who welcome it by a 2-to-1 ratio (30 percent to 14 percent), more than half (52 percent) shrugged off the issue as inconsequential.

“This is probably tapping into anxiety about changing health insurance and frustration over the exchanges,” says Oberlander. “Most people with employer-sponsored coverage like where they are and don’t want to move. That’s been true for a long time and is still true.”

Exchanges may be a mystery to many
Jost says the shrug factor may indicate respondents weren’t familiar enough with the new exchanges to view them as a threat to the health insurance they know, if not love.

“My personal feeling is that we’re going to have employer coverage around for a long time,” he says. “Employer coverage is such an ingrained part of our health care system. When you’re looking for a job, you want health insurance.”

Still, a recent analysis by research firm SandP Capital IQ predicted that by 2020, most Americans — including 90 percent of those currently insured through an employer — will need to shop for their health insurance using the Obamacare exchanges. Major companies could save $700 billion by shifting workers to the marketplaces, the report said.

Percentage of uninsured at new low
On an optimistic note, the percentage of uninsured respondents — 11 percent — was the lowest since Bankrate launched the Health Insurance Pulse survey last summer.

“All the surveys tend to show that we’re headed in the right direction,” says Jost. “The number of people who are uninsured is going down, so it’s pretty hard to avoid a causal connection.”

Bankrate’s Health Insurance Pulse survey was conducted May 15-18 by Princeton Survey Research Associates International with a nationally representative sample of 1,000 adults living in the continental United States. The margin of sampling error is plus or minus 3.5 percentage points.