I used to have five chickens, Stella, Sophie, Sam, Gertrude and Emma. Gertrude died of cancer. Emma, Sam and Sophie filled the bellies of the local coyotes, one by one and in that order. So I'm left with Stella, my least favorite. STELLAAA!!
How could you have a least favorite chicken, you ask? Well, my favorite, Sam, was a beautiful Black Sexton with big brown eyes and an inquisitive, friendly disposition. She was the only one who would let me pick her up. She was the only one who would be practically under foot while I was weeding, ready to pounce on worm and bug. Stella, on the other hand, was downright obtuse. I would throw out a handful of popcorn duds- one of the their favorite treats -and while her sisters would dash over to gobble them up she would linger at a distance until it was too late. She would never let me get close to her. I thought she was simply dumb.
But the other day when I tried to herd her into the coop, she adeptly evaded me with the circle-around-the-bush technique. Then it dawned on me: She's the one who is still alive.
We seem hold the same illusions about our investments, preferring the "friendly" ones even though they don't serve us well. Shouldn't it be a clue, the billions Wall Street spends on convincing us to let them keep using and losing our money? Unfortunately, we like the risks that we're told to like, the risks that are heavily marketed to us as the prerequisites to making it big.
"Ensuring your prosperity in the years to come using resources you have today"
Monday, February 4, 2013
Monday, January 14, 2013
Myth: Social Security is in Trouble
Financially, this blog title is a myth. Politically it is not. An absolutely excellent article on AlterNet by Lynn Stuart Parramore is the basis for this post and I will quote it heavily. I had led you to believe I would do a Fiscal Bluff Part II follow up post but I think it has become apparent the world did not come to an end. So I'm saving that for later. Social Security has been part of the Fiscal Bluff debate for inexplicable reasons. Parramore lists those reasons in her article titled, "The Giant Lie Trotted Out by Fiscal Conservatives Trying to Shred Social Security".
Here I list each supposed "problem" with Social Security and the corresponding truth:
Here I list each supposed "problem" with Social Security and the corresponding truth:
- OMG seniors are living so much longer than we expected! They're going to bankrupt the system! THE TRUTH: Social Security's original policymakers quite accurately predicted increasing longevity.
- OMG we need to raise the "normal" (or "full") retirement age as a result! THE TRUTH: In fact, retiree life expectancy gains since 1935 have been modest. Early figures were based on expectancy at birth, not at age 65. Life expectancy at 65 has only increased by 5 years since 1940, from 14.7 years to 19.6 years. Besides, the Full Retirement age has already been increased from 65 to 67 for certain age groups. Unnecessarily. By the Greenspan Commission back in 1983. Remember? Greenspan, the architect of our fiscal disaster.
- OMG we're going to be supporting a sea of broke old people! THE TRUTH: Longevity gains have gone to the affluent. Among the poorer and less educated, women have lost 5 years, men 3 years. Out of 34 industrialized countries we rank 27th in life expectancy. So as Parramore points out, raising the retirement age again would be a "direct assault" on the less fortunate. Furthermore, life expectancy gains are expected to slow in the future.
Monday, December 17, 2012
"Fiscal Cliff" or Fiscal BLUFF?
Do you think Congress is totally partisan? (Note to my Tea Party impaired friends, "partisan" means "prejudiced in favor of a particular cause", that is, either Democratic or Republican in this case. It does not mean, "Contrary to my current beliefs".) Partisanship has been most dramatically manifested by the Republicans voting lockstep against any Democratic proposals regardless of merit, some of which they once supported or even invented themselves! Even so, I don't think they're uniquely partisan. Because the one issue both parties agree upon is kowtowing to the super rich.
Let me define "super rich". A super rich person already has so much wealth that his lifetime material security is guaranteed. The pathologically super rich, though, become unhappy if their wealth fails to increase every moment in time. Any involuntary cost, even though it will have zero lifestyle impact, even though it might actually benefit them, is tantamount to a physical assault. This includes taxation. (Whether this arises from overly controlling parents, or not being held enough as infants, we can only speculate.) Those who benefit from the Golden Goose that lays their golden eggs, the infrastructure that makes wealth possible, need to help feed the goose. It is impossible to single handedly create wealth in a vacuum. But neither party seems to have the guts to ask these folks for sufficient revenue to protect and build our Commons. (Yes, that's capital "C" Commons. Please review the definition.)
Which brings us to the topic at hand, the fabricated myth of The Fiscal Cliff, lions, tigers and bears, oh my! (Will we ever develop immunity to irrational, baseless fears?) "The Fiscal Cliff" rolls off the tongues of pundits in every media with little explanation of what the hell it actually is or why, or even if, it is a bad thing. Personally, I think we should let "it" happen and I'll explain what "it" is in a moment. But before that, start thinking of The Fiscal Cliff instead as a snowy Fiscal Bluff over which we're about to take a fun glide on our Fiscal Sleds, ("Bluff" being an intentional double entendre). The Fiscal Cliff is an exaggerated, astoundingly nationalistic & partially manufactured distraction from vastly more serious issues such as the poisoning of everything we ingest & global climate change. issues nobody wants to deal with until it is too late. Which it probably already is. But . . .
To put it simply, our economy will tumble over the Fiscal Bluff in January, supposedly, when two job killing events will occur: higher taxes caused by the expiration of the Bush tax giveaways, and, precipitous cuts in government spending. Media and political dufuses somberly lament that this will allegedly send unemployment sky high and the markets into a ravine. You would think an asteroid is hurtling towards us. Some people perversely lust so much for this to be true that they're firing otherwise profitable employees (need I say Papa Johns?).
The first odd thing you will note about these two devilish horns is the implication that government spending creates jobs, which is true with one major exception. The exception is military spending which, although it does create jobs, only creates one-third as many as, say, building a domestic school or bridge. The second odd thing you will note is the implication that taxes create unemployment, which is false with few exceptions. These two views are incompatible. So reality must be somewhere in between.
The details are too lengthy to post here, but that's the beauty of the Internet (which arose from government programs, by the way). Do your own research and don't believe anyone, including me. So, in anticipation of this sleigh ride, what do you do with your money? Stash it in places that will protect it from any market declines but which will also participate in market gains should those occur. Yes, there are such places.
To be continued . . .
Let me define "super rich". A super rich person already has so much wealth that his lifetime material security is guaranteed. The pathologically super rich, though, become unhappy if their wealth fails to increase every moment in time. Any involuntary cost, even though it will have zero lifestyle impact, even though it might actually benefit them, is tantamount to a physical assault. This includes taxation. (Whether this arises from overly controlling parents, or not being held enough as infants, we can only speculate.) Those who benefit from the Golden Goose that lays their golden eggs, the infrastructure that makes wealth possible, need to help feed the goose. It is impossible to single handedly create wealth in a vacuum. But neither party seems to have the guts to ask these folks for sufficient revenue to protect and build our Commons. (Yes, that's capital "C" Commons. Please review the definition.)
Which brings us to the topic at hand, the fabricated myth of The Fiscal Cliff, lions, tigers and bears, oh my! (Will we ever develop immunity to irrational, baseless fears?) "The Fiscal Cliff" rolls off the tongues of pundits in every media with little explanation of what the hell it actually is or why, or even if, it is a bad thing. Personally, I think we should let "it" happen and I'll explain what "it" is in a moment. But before that, start thinking of The Fiscal Cliff instead as a snowy Fiscal Bluff over which we're about to take a fun glide on our Fiscal Sleds, ("Bluff" being an intentional double entendre). The Fiscal Cliff is an exaggerated, astoundingly nationalistic & partially manufactured distraction from vastly more serious issues such as the poisoning of everything we ingest & global climate change. issues nobody wants to deal with until it is too late. Which it probably already is. But . . .
To put it simply, our economy will tumble over the Fiscal Bluff in January, supposedly, when two job killing events will occur: higher taxes caused by the expiration of the Bush tax giveaways, and, precipitous cuts in government spending. Media and political dufuses somberly lament that this will allegedly send unemployment sky high and the markets into a ravine. You would think an asteroid is hurtling towards us. Some people perversely lust so much for this to be true that they're firing otherwise profitable employees (need I say Papa Johns?).
The first odd thing you will note about these two devilish horns is the implication that government spending creates jobs, which is true with one major exception. The exception is military spending which, although it does create jobs, only creates one-third as many as, say, building a domestic school or bridge. The second odd thing you will note is the implication that taxes create unemployment, which is false with few exceptions. These two views are incompatible. So reality must be somewhere in between.
The details are too lengthy to post here, but that's the beauty of the Internet (which arose from government programs, by the way). Do your own research and don't believe anyone, including me. So, in anticipation of this sleigh ride, what do you do with your money? Stash it in places that will protect it from any market declines but which will also participate in market gains should those occur. Yes, there are such places.
To be continued . . .
Friday, October 19, 2012
MYTH: The FDIC has 99 years to pay claims
I'm not sure where this myth originated nor do I really care. But it is a myth indeed. (I suspect either anti-government zealots and/or crooks selling "better" savings vehicles.) The fact is that FDIC regulations require the FDIC to replace lost bank deposits "as soon as possible " (see 12 USC1821(f)), usually the next day.
The FDIC was formed in response to the bank failures of the Great Depression (no, not this one, the one in 1929), Prozac for the banking system so to speak. I think it was a mistake because one artifact of safety nets such as the FDIC is that those with moral weakness (aka "humans") might tend to take more risks than they would in the absence of the insurance.
For example, imagine a football game with no referees. Instead there is just Game Insurance so that whichever team loses the game actually gets to win. Both teams win! Cheating & incompetence don't matter! How hard would either team try if that were the case?? I would prefer strict rules strictly enforced, with real penalties, which is how football is conducted now. Anybody know of a Wall Street banker who has been jailed since 2008? I don't. Where are the hundreds of heads that should be rolling from AIG, Lehman, & Countrywide, to name a few? The only things that are rolling are their companies' executives . . . in cash. Win win.
But back to the topic, the FDIC is indeed an important safety net for those of us here at the bottom of the food chain. And a married couple can easily enjoy a million dollars of protection. At the same bank. Each may have an IRA and an savings account insured up to $250k per account.
Having said that, keep in mind that there is no risk-free investment or savings vehicle. Let me say that another way. There is no risk-free investment or savings vehicle. (Do a google search for "financial risk" to review the different types of risk.) This is important enough to say a third way: There is no risk-free investment or savings vehicle. Here's why.
Although CDs and bank accounts are FDIC insured, they guarantee that you'll be subject to inflation certainty. Not inflation risk ("risk" is when you're unsure whether or not an event will occur.), inflation certainty because inflation will certainly exceed the returns your bank can offer.
So ultimately, the types of financial risk you need to minimize depend on what order you rank the four main financial priorities for a portfolio:
The FDIC was formed in response to the bank failures of the Great Depression (no, not this one, the one in 1929), Prozac for the banking system so to speak. I think it was a mistake because one artifact of safety nets such as the FDIC is that those with moral weakness (aka "humans") might tend to take more risks than they would in the absence of the insurance.
For example, imagine a football game with no referees. Instead there is just Game Insurance so that whichever team loses the game actually gets to win. Both teams win! Cheating & incompetence don't matter! How hard would either team try if that were the case?? I would prefer strict rules strictly enforced, with real penalties, which is how football is conducted now. Anybody know of a Wall Street banker who has been jailed since 2008? I don't. Where are the hundreds of heads that should be rolling from AIG, Lehman, & Countrywide, to name a few? The only things that are rolling are their companies' executives . . . in cash. Win win.
But back to the topic, the FDIC is indeed an important safety net for those of us here at the bottom of the food chain. And a married couple can easily enjoy a million dollars of protection. At the same bank. Each may have an IRA and an savings account insured up to $250k per account.
Having said that, keep in mind that there is no risk-free investment or savings vehicle. Let me say that another way. There is no risk-free investment or savings vehicle. (Do a google search for "financial risk" to review the different types of risk.) This is important enough to say a third way: There is no risk-free investment or savings vehicle. Here's why.
Although CDs and bank accounts are FDIC insured, they guarantee that you'll be subject to inflation certainty. Not inflation risk ("risk" is when you're unsure whether or not an event will occur.), inflation certainty because inflation will certainly exceed the returns your bank can offer.
So ultimately, the types of financial risk you need to minimize depend on what order you rank the four main financial priorities for a portfolio:
- Preservation
- Income
- Liquidity
- Growth
Sunday, September 2, 2012
MYTH: The Best Place Is a Money Milkshake!
The most frequent question posed to me by clients, friends & new contacts is this: "Where's the best place to put my money?" I'll get to the presumptions behind this question in a minute. But it cannot be honestly answered without more information.
I usually say, "Well, it depends on what you want, what your plans are, your current asset level, when you want to retire, your pre & post-retirement budget, how long you expect to live, your debt level, your rate of return history and expectations, your risk tolerance, your health, your wishes for your family or charities . . " and so on. Sometimes though, if I'm feeling flippant, I'll say something like "It all depends on what you want. If you want a money milkshake, the best place for your money is in a blender with vanilla ice cream and blueberries." I'm sure, more often than not, that feels evasive, like I'm dodging the issue.
So what are people thinking when they pose that question? I suspect most have in the backs of their minds that authoritative but fickle pie chart that shows up on their brokerage/retirement statements. You know, similar to these:
Looking backwards, they are painfully aware that if only they had adjusted those pieces of the pie, they would have made a ton of money rather than losing. Or, if they hadn't been so conservative, they would have at least kept up with inflation. They blame themselves for responding- or not responding -to Wall Street's siren call. "Now is always a good time to invest!" as TV's financial guru (not) Cramer screams. But they shouldn't blame themselves. Over the 20 years ending 12/31/2010, average equity fund investors earned 3.83%/yr. The S&P500 index earned 9.14%! The problem is chasing returns, buying high and selling low, and incurring too many expenses. (And then there's the issue of the shrinking number of fund managers who actually beat the unmanaged indexes. As financial data becomes more and more accessible, only about 15% of managers beat the indexes to which their styles are compared.)
But why settle for even the S&P500 returns? Below is a rather complicated graph but it's very important. It shows RISK (defined as how wildly your account balance swings up and down over time) and RETURN (the average annual return over the 10 year period shown) for the S&P500 vs. Vanguard. Note how much better Vanguard's unmanaged, low cost index portfolios outperform the S&P500 at large. Even so, can we rely on the past to predict the future?
So embedded in the question, "Where is the best place to put my money." is this one: "Where can I get the highest returns without any risk?" What is it perhaps more important to ask? Because the key is asking the right questions. In addition to those posed in my second paragraph, these additional money questions are essential:
Best Always,
Gary
I usually say, "Well, it depends on what you want, what your plans are, your current asset level, when you want to retire, your pre & post-retirement budget, how long you expect to live, your debt level, your rate of return history and expectations, your risk tolerance, your health, your wishes for your family or charities . . " and so on. Sometimes though, if I'm feeling flippant, I'll say something like "It all depends on what you want. If you want a money milkshake, the best place for your money is in a blender with vanilla ice cream and blueberries." I'm sure, more often than not, that feels evasive, like I'm dodging the issue.
So what are people thinking when they pose that question? I suspect most have in the backs of their minds that authoritative but fickle pie chart that shows up on their brokerage/retirement statements. You know, similar to these:
Looking backwards, they are painfully aware that if only they had adjusted those pieces of the pie, they would have made a ton of money rather than losing. Or, if they hadn't been so conservative, they would have at least kept up with inflation. They blame themselves for responding- or not responding -to Wall Street's siren call. "Now is always a good time to invest!" as TV's financial guru (not) Cramer screams. But they shouldn't blame themselves. Over the 20 years ending 12/31/2010, average equity fund investors earned 3.83%/yr. The S&P500 index earned 9.14%! The problem is chasing returns, buying high and selling low, and incurring too many expenses. (And then there's the issue of the shrinking number of fund managers who actually beat the unmanaged indexes. As financial data becomes more and more accessible, only about 15% of managers beat the indexes to which their styles are compared.)
But why settle for even the S&P500 returns? Below is a rather complicated graph but it's very important. It shows RISK (defined as how wildly your account balance swings up and down over time) and RETURN (the average annual return over the 10 year period shown) for the S&P500 vs. Vanguard. Note how much better Vanguard's unmanaged, low cost index portfolios outperform the S&P500 at large. Even so, can we rely on the past to predict the future?
So embedded in the question, "Where is the best place to put my money." is this one: "Where can I get the highest returns without any risk?" What is it perhaps more important to ask? Because the key is asking the right questions. In addition to those posed in my second paragraph, these additional money questions are essential:
- How can I minimize my costs? How can I get my money's worth for the fees I'm paying?
- How can I eliminate risk without taking a bath on poor returns?
- How should I best hold my invested assets (in qualified retirement accounts, real estate, hybrid products, trusts?) to be sure my plans are fulfilled?
- What trends may make historical performance a permanent thing of the past? What is reasonable to expect in the rapidly changing future?
Best Always,
Gary
Saturday, August 11, 2012
The First Thing They Teach Lifeguards
I just returned from a two-day conference with my field marketing organization Wealth Financial Group, based in Chicago. Beautiful city!
Our keynote speaker was author & consultant Frank Maselli, a dynamic, animated, hilarious, brilliant man. Frank likened us financial advisers to lifeguards, trying to convince potential drowning victims to climb into the lifeboat while there is still room. He asked us, "What is the first thing a lifeguard has to learn? To keep from being pulled under by the person you're trying to rescue!".
So true. And it highlighted the stunning frustration most of us non-Wall Street advisers feel as we holler, "Get in the boat! Get in the boat!". The general public has been splashed, dunked, slapped and- in some cases -actually drowned by Wall Street while Wall Streeters accumulate record, massive wealth.
As Nobel prize winning economist Joseph Stiglitz has stated, the economy is broken when financial rewards are disconnected from public benefit. That is, you should not make a lot of money unless you've provided a lot of benefit.
I get paid very well for what I do. Mine is a complicated, rapidly changing, essential business. I put my heart and soul into it and have for over 30 years. It is my professional mission to dispel the Wall Street myth that you have to lose money to make money. I can't believe anyone still buys that shell game. The lifeboat analogy is right on because- as I pointed out in my last blog post -the options for reducing financial risk keep shrinking in number and in quality. The lifeboats are filling up. And I am focusing on swimmers who are close by and ready to climb in.
Our keynote speaker was author & consultant Frank Maselli, a dynamic, animated, hilarious, brilliant man. Frank likened us financial advisers to lifeguards, trying to convince potential drowning victims to climb into the lifeboat while there is still room. He asked us, "What is the first thing a lifeguard has to learn? To keep from being pulled under by the person you're trying to rescue!".
So true. And it highlighted the stunning frustration most of us non-Wall Street advisers feel as we holler, "Get in the boat! Get in the boat!". The general public has been splashed, dunked, slapped and- in some cases -actually drowned by Wall Street while Wall Streeters accumulate record, massive wealth.
As Nobel prize winning economist Joseph Stiglitz has stated, the economy is broken when financial rewards are disconnected from public benefit. That is, you should not make a lot of money unless you've provided a lot of benefit.
I get paid very well for what I do. Mine is a complicated, rapidly changing, essential business. I put my heart and soul into it and have for over 30 years. It is my professional mission to dispel the Wall Street myth that you have to lose money to make money. I can't believe anyone still buys that shell game. The lifeboat analogy is right on because- as I pointed out in my last blog post -the options for reducing financial risk keep shrinking in number and in quality. The lifeboats are filling up. And I am focusing on swimmers who are close by and ready to climb in.
Tuesday, July 31, 2012
MYTH: I can always buy Long Term Care insurance later
I know it must be irritating to you. But I won't stop doing it. That is, regaling you of the steadily shrinking options for reducing your financial risks. The quantity and quality of techniques to protect yourself and your money are in an entropic spiral.
For example, I've mass emailed ad nauseum about the financial safe haven of annuities (which, not surprisingly, the Wall Street owned corporate press continue to trash). My best company, Aviva, just reduced their minimum interest rate to 1%, making it not much better than the average CD (if it weren't for the additional benefits of tax deferral and guaranteed income).
Long Term Care risk management strategies have also been dragged onto the chopping block virtually every month. Several big names have pulled out of the market altogether, such as Prudential and MetLife. Others have discontinued lifetime benefits and what are called "limited pay" premium schedules. Used to be that you could pay larger fixed premiums for 10-20 years thereby eliminating the risk of future rate increases. All have increased their rates on new applicants and existing policyholders alike. My own premiums have doubled in the last 10 years, but are still 1/2 the cost of a similar policy these days. Pays to buy it early!
But sadly, the best buy in Oregon for healthy nonsmokers, United of Omaha, is discontinuing lifetime benefits, group plans, and limited pay options effective with applications signed by tomorrow, August 1. They just told me this today! They also implemented a healthy rate increase a month ago.
What does all this mean? It means that long term care is a serious risk, so serious that it has the insurance companies running scared. The good news is, if properly structured, sufficient protection is still very affordable. With Federal deductibility of premiums and 15% Oregon tax credit, this type of insurance is heavily favored by not only the tax code but several other State and Federal provisions, such as the Partnership Program.
For example, I've mass emailed ad nauseum about the financial safe haven of annuities (which, not surprisingly, the Wall Street owned corporate press continue to trash). My best company, Aviva, just reduced their minimum interest rate to 1%, making it not much better than the average CD (if it weren't for the additional benefits of tax deferral and guaranteed income).
Long Term Care risk management strategies have also been dragged onto the chopping block virtually every month. Several big names have pulled out of the market altogether, such as Prudential and MetLife. Others have discontinued lifetime benefits and what are called "limited pay" premium schedules. Used to be that you could pay larger fixed premiums for 10-20 years thereby eliminating the risk of future rate increases. All have increased their rates on new applicants and existing policyholders alike. My own premiums have doubled in the last 10 years, but are still 1/2 the cost of a similar policy these days. Pays to buy it early!
But sadly, the best buy in Oregon for healthy nonsmokers, United of Omaha, is discontinuing lifetime benefits, group plans, and limited pay options effective with applications signed by tomorrow, August 1. They just told me this today! They also implemented a healthy rate increase a month ago.
What does all this mean? It means that long term care is a serious risk, so serious that it has the insurance companies running scared. The good news is, if properly structured, sufficient protection is still very affordable. With Federal deductibility of premiums and 15% Oregon tax credit, this type of insurance is heavily favored by not only the tax code but several other State and Federal provisions, such as the Partnership Program.
Monday, July 9, 2012
MYTH: Financial rewards are the best motivation
I must give credit for this post to Paul Begala, political writer for Newsweek. In the June 25th issue he passed on an anecdote which, whether true or not, epitomizes a major destructive attitude, a cultural virus in our country. I quote it directly:
I have a wealthy friend who lives in a wealthy neighborhood. One day he was in his front yard, chatting with his next-door neighbor, a Republican, who asked him why he's a Democrat. My friend said he'd grown up poor but had gotten a good public education, worked his tail off, and made it. Then he pointed to the gardener across the street. "Don't you want that gardener's son to live the same American Dream we have?" His neighbor shot him down, sniffing, "That gardener's son will be my son's gardener".
This is entitlement thinking- and parenting -at its worst. I like Warren Buffet's philosophy that you want to give your children enough so they can do anything, but not too much so they don't have to do anything. The guy in the story has embodied the mentalities that we came here to this continent to escape; nepotism, meritless accumulation of wealth and power, repression of the virtue, hard work and intelligence of our fellow citizens. What if his son turns out to be a lazy jerk? And the gardener's son a brilliant inventor who, for lack of basic education fails to blossom? We, as a society, lose. The rich son loses. The gardener's son loses. Personally, I expected my son to make his own mistakes, take some hard knocks, and learn to rely not only on his own brains and initiative but also to seek out help and partnerships from others, while pursuing work that he enjoys and is good at. After an excellent education in our public schools and universities, he makes a great living and loves his work. He has become a healthy adult, highly valued in our economy. The question is not what we get in this life, but what we become. I know I've said that many times. It's worthy of repetition.
People who are insecure & afraid can become greedy and lose their compassion for others. Another favorite quote: The highest expression of human intelligence is kindness. (And I don't mean shallow courtesies.) Although our Republican Congress is not the exclusive domain of this sickness, they dominate the field. Rather than skillful statesmen ( remember Mark Hatfield?) they have become small-minded, mean-spirited, irrational sycophants, creating a death spiral to the bottom of dysfunction by institutionalizing the "virtue" of aggressively self-imposed stupidity. As a result, the self-destructive culture they have created, after a 30-yr. concerted effort, is harming themselves more than the issues they fear (gays, taxes, government regulation, dark-skinned people. non-Christians, equal opportunity etc.) In fact, their fears have been baseless all along. They have met the enemy in the mirror.
I have a wealthy friend who lives in a wealthy neighborhood. One day he was in his front yard, chatting with his next-door neighbor, a Republican, who asked him why he's a Democrat. My friend said he'd grown up poor but had gotten a good public education, worked his tail off, and made it. Then he pointed to the gardener across the street. "Don't you want that gardener's son to live the same American Dream we have?" His neighbor shot him down, sniffing, "That gardener's son will be my son's gardener".
This is entitlement thinking- and parenting -at its worst. I like Warren Buffet's philosophy that you want to give your children enough so they can do anything, but not too much so they don't have to do anything. The guy in the story has embodied the mentalities that we came here to this continent to escape; nepotism, meritless accumulation of wealth and power, repression of the virtue, hard work and intelligence of our fellow citizens. What if his son turns out to be a lazy jerk? And the gardener's son a brilliant inventor who, for lack of basic education fails to blossom? We, as a society, lose. The rich son loses. The gardener's son loses. Personally, I expected my son to make his own mistakes, take some hard knocks, and learn to rely not only on his own brains and initiative but also to seek out help and partnerships from others, while pursuing work that he enjoys and is good at. After an excellent education in our public schools and universities, he makes a great living and loves his work. He has become a healthy adult, highly valued in our economy. The question is not what we get in this life, but what we become. I know I've said that many times. It's worthy of repetition.
People who are insecure & afraid can become greedy and lose their compassion for others. Another favorite quote: The highest expression of human intelligence is kindness. (And I don't mean shallow courtesies.) Although our Republican Congress is not the exclusive domain of this sickness, they dominate the field. Rather than skillful statesmen ( remember Mark Hatfield?) they have become small-minded, mean-spirited, irrational sycophants, creating a death spiral to the bottom of dysfunction by institutionalizing the "virtue" of aggressively self-imposed stupidity. As a result, the self-destructive culture they have created, after a 30-yr. concerted effort, is harming themselves more than the issues they fear (gays, taxes, government regulation, dark-skinned people. non-Christians, equal opportunity etc.) In fact, their fears have been baseless all along. They have met the enemy in the mirror.
Tuesday, June 19, 2012
Myth: You think you know . . .
In a great article given to me by my Mother, Linfield College economics professor Eric Schuck claims, "What you think you know is wrong." The article appears in The Oregonian at http://www.oregonlive.com/opinion/index.ssf/2012/06/debunking_economic_myths_or_th.html The online title is "Debunking economic myths [which is dear to my heart], or the trouble with what you think you know"
I will summarize and gently editorialize his three myths:
Myth #1. Firms (companies) are job creators-
Giving special deference to firms as "job creators" simply is not an accurate assessment of their mission and role in society. They make profits, not jobs. Professor Schuck goes on to point out that to an economist jobs generally aren't a benefit, they're a cost of profit-making. Under our current legal structure, the primary purpose of a corporation is to make money for its owners. If they can do it without employing anyone, then they must. Such is the psychosis of the corporate model. I highly recommend the documentary, The Corporation.
So whose legal mission is it to create jobs? That would be an obligation of the federal government under the Employment Acts of 1946 and 1978, he points out. And it has largely failed in that mission, having lost 160,000 public sector jobs this year alone. Because of myth #2.
Myth #2. Governments should work by the same budgetary rules as families.
There are two sides to this- revenue and expenditures -but I disagree that this is a myth for both sides; when times are tough for a family it makes sense to increase revenue if at all possible, just like governments must [selectively] raise taxes in a recession. And some "deficit" spending is necessary for a family too such as taking out education loans for retraining or getting a new outfit to dress for success in job interviews. But Professor Schuck is right on that the role of government is to stabilize the economy. Which means preserving jobs whenever possible.
Myth #3. Federal deficits are the scariest problem the economy faces.
This section is so good I have to include the whole thing: [Federal deficits are] not, and here's why: Current interest rates on federally issued bonds are running at about 1.5 percent. Current inflation rates are right around 2 percent. Adjusting for inflation, the real interest rates on public debt is "less than zero." Effectively, people buying U.S. Treasury bonds are paying the government to borrow money from them. If there was ever a time to run a deficit to offset reductions in spending at the state and local level to stop job losses, this is it. Better still would be to use those negative real interest rates to finance infrastructure investments that both create demand and improve productive capacity. There are worse things in this world than using debt to pay for much-needed roads, cops and schools, especially when the short-run cost of that debt is pretty much zero. Debt and deficits are long-run problems; unemployment is a short-run problem. Fix today's problems first. By increasing, not decreasing, government spending.
I will summarize and gently editorialize his three myths:
Myth #1. Firms (companies) are job creators-
Giving special deference to firms as "job creators" simply is not an accurate assessment of their mission and role in society. They make profits, not jobs. Professor Schuck goes on to point out that to an economist jobs generally aren't a benefit, they're a cost of profit-making. Under our current legal structure, the primary purpose of a corporation is to make money for its owners. If they can do it without employing anyone, then they must. Such is the psychosis of the corporate model. I highly recommend the documentary, The Corporation.
So whose legal mission is it to create jobs? That would be an obligation of the federal government under the Employment Acts of 1946 and 1978, he points out. And it has largely failed in that mission, having lost 160,000 public sector jobs this year alone. Because of myth #2.
Myth #2. Governments should work by the same budgetary rules as families.
There are two sides to this- revenue and expenditures -but I disagree that this is a myth for both sides; when times are tough for a family it makes sense to increase revenue if at all possible, just like governments must [selectively] raise taxes in a recession. And some "deficit" spending is necessary for a family too such as taking out education loans for retraining or getting a new outfit to dress for success in job interviews. But Professor Schuck is right on that the role of government is to stabilize the economy. Which means preserving jobs whenever possible.
Myth #3. Federal deficits are the scariest problem the economy faces.
This section is so good I have to include the whole thing: [Federal deficits are] not, and here's why: Current interest rates on federally issued bonds are running at about 1.5 percent. Current inflation rates are right around 2 percent. Adjusting for inflation, the real interest rates on public debt is "less than zero." Effectively, people buying U.S. Treasury bonds are paying the government to borrow money from them. If there was ever a time to run a deficit to offset reductions in spending at the state and local level to stop job losses, this is it. Better still would be to use those negative real interest rates to finance infrastructure investments that both create demand and improve productive capacity. There are worse things in this world than using debt to pay for much-needed roads, cops and schools, especially when the short-run cost of that debt is pretty much zero. Debt and deficits are long-run problems; unemployment is a short-run problem. Fix today's problems first. By increasing, not decreasing, government spending.
Friday, May 11, 2012
Ten Predictions for 2012
I've learned to severely limit my clairvoyant claims; even with what seems to be the perfect collection of data it only takes one tiny detail to derail an entire prediction. It's like winning a Tesla sports car . . . with no key.
So I'm borrowing these Ten Key Predictions from Neuberger Berman, courtesy of AdvisorOne*, so that if they don't pan out I can simply return them. I do agree with all ten, in principle and except as noted.
#10- Sector rotation continues to be pivotal- They see "attractive" returns in energy, information technology, staples (like sugar, rice, etc. not paper staples) & health care. Which means higher than normal inflation in those areas too.
#9- High geopolitical tensions- Although somewhat stable, there seems to be no place for security seekers. China may not be the economic engine we imagined.
#8- Income oriented assets will be "an attractive source of income" Neuberger likes master limited partnerships. But for you and me, equity indexed annuities with income guarantees are safer. Aviva is attempting to pull their killer annuity from the national market but Oregon won't let them do it quite yet. Please take the time to let me explain this product to you. It's going away soon!
#7- Favor high-quality equities if you simply can't resist the stock market. In the short term I disagree with this in principle because I see little to support the current market bubble.
#6- Global Monetary Easing may make commodities and emerging markets attractive. Key word is "may". I'm still not sure what effect the $600 trillion in outstanding CDOs will have if and when they come home to roost.
#5- China will experience a soft landing. What? China's not going gangbusters anymore? No, it isn't because no one can afford to buy their stuff.
#4- European Debt crisis will reach a tipping point. Failure to reach any workable solutions means the EU will by default (linguistically not financially) select "none of the above". The tentacles from that mess reach around the world. And the possible effect on us is exacerbated by the USA's shadow inventory of foreclosures.
#3- USA avoids double dip recession. I don't know. The really smart guys are saying 1.5-2% "growth" in our economy. But I just don't trust the employment and housing data coming out. Sure more people are getting jobs but are they real jobs? Family wage jobs? Full time with benefits jobs? In most cases, no. So who is going to buy all the stuff?
#2- Obama will win a second term. However you feel about this, the stats show that with an approval rating at or above 48% and unemployment below 7.4% Obama should win. And then there's the embarrassing inability of the Republicans to come up with a viable candidate. Neuberger points out that Obama's successes outweigh anything else (e.g., nine straight quarters of economic growth, 22 consecutive months of private sector job gains, the death of Osama bin Laden, Libya)
#1- Prominent Politics: significant in Europe, sound and fury here. Neuberger is far more optimistic than I that the EU members will come up with viable solutions to their fiscal ailments. And stateside it will be impossible to guess whether Congress will finally accomplish meaningful budget and tax reform. It appears many of the Congressional crazies will lose their seats this round. None too soon.
Best Always,
Gary
*http://www.advisorone.com/2012/02/27/10-key-predictions-for-markets-election-in-2012-ne?utm_source=dailywire22712&utm_medium=enewsletter&utm_campaign=dailywire&page=2
So I'm borrowing these Ten Key Predictions from Neuberger Berman, courtesy of AdvisorOne*, so that if they don't pan out I can simply return them. I do agree with all ten, in principle and except as noted.
#10- Sector rotation continues to be pivotal- They see "attractive" returns in energy, information technology, staples (like sugar, rice, etc. not paper staples) & health care. Which means higher than normal inflation in those areas too.
#9- High geopolitical tensions- Although somewhat stable, there seems to be no place for security seekers. China may not be the economic engine we imagined.
#8- Income oriented assets will be "an attractive source of income" Neuberger likes master limited partnerships. But for you and me, equity indexed annuities with income guarantees are safer. Aviva is attempting to pull their killer annuity from the national market but Oregon won't let them do it quite yet. Please take the time to let me explain this product to you. It's going away soon!
#7- Favor high-quality equities if you simply can't resist the stock market. In the short term I disagree with this in principle because I see little to support the current market bubble.
#6- Global Monetary Easing may make commodities and emerging markets attractive. Key word is "may". I'm still not sure what effect the $600 trillion in outstanding CDOs will have if and when they come home to roost.
#5- China will experience a soft landing. What? China's not going gangbusters anymore? No, it isn't because no one can afford to buy their stuff.
#4- European Debt crisis will reach a tipping point. Failure to reach any workable solutions means the EU will by default (linguistically not financially) select "none of the above". The tentacles from that mess reach around the world. And the possible effect on us is exacerbated by the USA's shadow inventory of foreclosures.
#3- USA avoids double dip recession. I don't know. The really smart guys are saying 1.5-2% "growth" in our economy. But I just don't trust the employment and housing data coming out. Sure more people are getting jobs but are they real jobs? Family wage jobs? Full time with benefits jobs? In most cases, no. So who is going to buy all the stuff?
#2- Obama will win a second term. However you feel about this, the stats show that with an approval rating at or above 48% and unemployment below 7.4% Obama should win. And then there's the embarrassing inability of the Republicans to come up with a viable candidate. Neuberger points out that Obama's successes outweigh anything else (e.g., nine straight quarters of economic growth, 22 consecutive months of private sector job gains, the death of Osama bin Laden, Libya)
#1- Prominent Politics: significant in Europe, sound and fury here. Neuberger is far more optimistic than I that the EU members will come up with viable solutions to their fiscal ailments. And stateside it will be impossible to guess whether Congress will finally accomplish meaningful budget and tax reform. It appears many of the Congressional crazies will lose their seats this round. None too soon.
Best Always,
Gary
*http://www.advisorone.com/2012/02/27/10-key-predictions-for-markets-election-in-2012-ne?utm_source=dailywire22712&utm_medium=enewsletter&utm_campaign=dailywire&page=2
Tuesday, March 6, 2012
IRS's "Dirty Dozen Tax Scams for 2012"
Tax time is an extremely emotion-laden month, whether you get a refund or a bill. Emotionality and rationality tend to be mutually exclusive, don't they? As a result, we risk becoming easy fodder for bad ideas and the scam artists who promote them. To Preserve your Wealth, avoiding mistakes is more important than finding the next hot investment.
IRS helpfully publishes their annual Dirty Dozen scam list which I will summarize for you below. If you have more time, the link is well worth exploring. Here they are:
IRS helpfully publishes their annual Dirty Dozen scam list which I will summarize for you below. If you have more time, the link is well worth exploring. Here they are:
- Identity Theft- This is one good reason to file as early as possible. Gary. It is very easy for a thief to file a false return with made-up W-2s & 1099s claiming income tax withholding that never happened. If you've already filed, IRS will notify you that a 2nd return has been filed before issuing another refund.
- Phishing- For you linguists, according to Wikipedia, "phishing" probably originated with "phreaking" which involved various tricks to steal free phone calls ("free" + "phone" = "phreak". I would have said, "phrone"), including using Cap'n Crunch whistles. Phishing scammers will bait you with a phony email that appears to have come from your bank or some official agency, asking you to confirm your social security number or other private info. Neither IRS nor banks do this by email! By the way, when you're done reading this, please send me all your passwords and PINs.
- Tax Preparer Fraud- Most preparers are honest and competent. The main danger sign is if the preparer fails to sign your return and/or doesn't have a Preparer Tax ID number on the return. Both are now required in 2012. And never consent to share any of your refund with the preparer. Finally, as a planner and not a critic, tax return preparers want to be your hero this year by maximizing your refund or minimizing your tax. But often this results in higher total taxes over your lifetime. For example, Traditional IRA contributions may be inappropriate if you expect to be in higher tax brackets in coming years (that is, all of us). Have an experienced long-term planner (uh, ahem, like me) do some projections for you.
- Hiding Income Offshore- This only works if you are in the Fortune 500 with Wall Street law firms on retainer. It does not work for real people. One website estimates there are over 36,000 corporations registered in the Cayman Islands alone. That's one & a half customers per corporation. Wow, now that's customer service.
- "Free Money" from IRS or Social Security scams- Happening more frequently in small church congregations of low income or elderly folks, the first clue here should be, "Why is this person talking about this in my church?" The scammers file false returns for a large fee, the refund arrives, and then later so does the audit letter. As far as I'm concerned, these are the lowest scumbags on the totem pole.
- False income and Expenses- You're thinking, hey wait a minute, why would I file extra income?? To get refundable credits such as the EITC or the American Opportunity Tax Credit.
- False Form 1099 Refund Claims- If you didn't get the 1099 yourself, don't let anyone make one up for you. And certainly don't let them use your info. to file a return for others.
- Frivolous Arguments- Here's a list: http://www.irs.gov/taxpros/article/0,,id=159853,00.html If you recognize any of them in a pitch made to you by a "tax expert", run in the opposite direction.
- Falsely Claiming Zero Wages- Again, for a hefty fee, scammers will indeed get you a refund. Consider it a temporary loan with a $5000 penalty.
- Abuse of Charitable Organizations and Deductions- self evident.
- Disguised Corporate Ownership- Again. And again. This only works if you are a huge multinational corporation, enjoying special tax laws you wrote yourself. (IRS never pays attention to the tax laws I write for them.) If someone says little ol' you can do the same thing, same strategy: run in the opposite direction.
- Misuse of Trusts- If it has not at least been reviewed by a local attorney that you know and trust, the trust probably will not deliver on the scammer's promise.
Sunday, February 5, 2012
Myth: "Jobs Creation" will turn the economy around.
Sorry fellow Progressives, Liberals & Democrats. The sad truth is, Job Creation is a corporate shell game unwittingly adopted by many of us, designed to perpetuate the Conservative Nanny State. Job creation sounds really nice, is politically expedient, but unfortunately is just another iteration of the thoroughly debunked "trickle down" economic theory. Feel like you're getting pissed on? That's trickle down economics happening to you.
But here's how the argument goes:
1. Lower taxes on people with gobs of money.
2. They will suddenly burst into a fever pitch of hiring many many workers to make or do new stuff.
3. Those new workers will pay new taxes.
4. Which will pay for the revenue gap created by lowering taxes on people with gobs of money.
This is trickle down, voodoo, supply side economics at its worst. It has never ever worked! Ever! And the best example is the Bush tax cuts. Between 2001 & 2007 (the Bush years, remember?) the top 400 income recipients saw their after tax income skyrocket 476%. During the same period, median family income soared, well . . . zero %. The economy shed millions of jobs & trillions of dollars in wealth. What happened?
1. The people (which includes multi-national corporations, according to our "Supreme" court) with gobs of money kept almost five times as much of it, sheltering it in offshore accounts, trusts & other tax-avoidance schemes. They are no happier than before. (The corporations, of course, feel absolutely nothing even though they are people.)
2. Rather than creating jobs, they squeezed down existing wages & benefits using the threat of unemployment as leverage.
3. People who actually work for a living saw their real income shrink or stay flat, or
4. They lost their jobs, their asses & their homes. They are much less happy than before.
5. Thereby decreasing demand for goods, stifling economic growth & decreasing tax receipts.
6. Go to #1.
Henry Ford recognized that production- or supply -does not create demand, or jobs. Purchasing power creates demand, which increases prices, production and economic growth. So he paid his employees much higher wages than his competitors because he wanted his employees to be able to afford his cars! You know the rest of the story.
Here's the key issue: do we want a country that rewards hard work, intelligence, creativity and teamwork? Or do we want a country, like we have now, that rewards being rewarded? Seriously. The argument against taxing the wealthy is that it would be "punishing success". Oh spare me. Inheriting $50 mil. is "success"? Cashing in $100 mil. in stock options is "success"? Does anyone really believe Mitt Romney "earned" $20.9 mil. last year? What value did he create in return? Would he have "worked" any less hard for $10 mil.? In truth, virtually all of the $20.9 mil. was passive income that would have come in even if both he and his wife had been in comas. That's how valuable they were in the marketplace of labor. What we are really rewarding is narcissism, plain and simple.
The rich in character, like Bill Gates and Warren Buffet, recognize that their massive wealth would have been impossible without public resources. They recognize their obligation to the system which enabled their vast wealth. Too bad this enlightened view isn't more contagious.
But here's how the argument goes:
1. Lower taxes on people with gobs of money.
2. They will suddenly burst into a fever pitch of hiring many many workers to make or do new stuff.
3. Those new workers will pay new taxes.
4. Which will pay for the revenue gap created by lowering taxes on people with gobs of money.
This is trickle down, voodoo, supply side economics at its worst. It has never ever worked! Ever! And the best example is the Bush tax cuts. Between 2001 & 2007 (the Bush years, remember?) the top 400 income recipients saw their after tax income skyrocket 476%. During the same period, median family income soared, well . . . zero %. The economy shed millions of jobs & trillions of dollars in wealth. What happened?
1. The people (which includes multi-national corporations, according to our "Supreme" court) with gobs of money kept almost five times as much of it, sheltering it in offshore accounts, trusts & other tax-avoidance schemes. They are no happier than before. (The corporations, of course, feel absolutely nothing even though they are people.)
2. Rather than creating jobs, they squeezed down existing wages & benefits using the threat of unemployment as leverage.
3. People who actually work for a living saw their real income shrink or stay flat, or
4. They lost their jobs, their asses & their homes. They are much less happy than before.
5. Thereby decreasing demand for goods, stifling economic growth & decreasing tax receipts.
6. Go to #1.
Henry Ford recognized that production- or supply -does not create demand, or jobs. Purchasing power creates demand, which increases prices, production and economic growth. So he paid his employees much higher wages than his competitors because he wanted his employees to be able to afford his cars! You know the rest of the story.
Here's the key issue: do we want a country that rewards hard work, intelligence, creativity and teamwork? Or do we want a country, like we have now, that rewards being rewarded? Seriously. The argument against taxing the wealthy is that it would be "punishing success". Oh spare me. Inheriting $50 mil. is "success"? Cashing in $100 mil. in stock options is "success"? Does anyone really believe Mitt Romney "earned" $20.9 mil. last year? What value did he create in return? Would he have "worked" any less hard for $10 mil.? In truth, virtually all of the $20.9 mil. was passive income that would have come in even if both he and his wife had been in comas. That's how valuable they were in the marketplace of labor. What we are really rewarding is narcissism, plain and simple.
The rich in character, like Bill Gates and Warren Buffet, recognize that their massive wealth would have been impossible without public resources. They recognize their obligation to the system which enabled their vast wealth. Too bad this enlightened view isn't more contagious.
The Evil of Annuities.
The financial- and not so financial -media just love protecting their readers from . . . look out! Be careful! Oh no! ANNUITIES!! Be very afraid! Every article I've read (and I don't use absolutes lightly) recommending against annuities commits one or more of these errors:
If you want the facts, call or email for my free DVD, "The Reinventing Savings Program". Or, watch it now online at Reinventing Savings
- Invalid comparisons. For example, saying annuities have "high fees" without describing to which kind of annuity they refer or to which alternative they are comparing. Variable annuities indeed have high fees, as much as 3-4%, even when you are losing money, compared to virtually every other investment alternative outside of hedge funds! Variable annuities are market-based and can lose money. Fixed and Indexed annuities do not, are not, and cannot. Some have no fees.
- Outright false or outdated information. For example, the most common claim is "Your money is tied up for ten years. Or longer!" Well guess what. In exchange for principal protection and minimum rates that are 3-4 times higher than CD rates, the annuity company needs some built in stability in return. Plus, your money really isn't "tied up". Virtually all annuities provide annual liquidity of 10% or greater. And with all the annuities I offer, penalties decline and vanish no later than the 10th year, or altogether in the case of death, terminal illness, or need for long term care. The point is, annuities are for your long term safe money!
- Focusing on the irrelevant. For example, "annuity salesmen earn huge commissions!" Even if that were true (it's not) so what? Annuity commissions are less than those you pay for houses, cars, prescriptions, electronics, and a whole slew of other things you buy. Annuities are complex and always changing, the market is very competitive, and- because of the media bias about them -it is difficult to educate a paranoid public about them. The relevant question is, "Does this particular annuity accomplish your financial goals better than any other alternative?" That is my sole focus when I select an annuity product. The answer is very often, "Yes".
If you want the facts, call or email for my free DVD, "The Reinventing Savings Program". Or, watch it now online at Reinventing Savings
Wednesday, January 11, 2012
Avoiding Fraud in 2012
My favorite financial e-newsletter, Advisor One had an article last month about the rise in "Baby Boomer Investment Scams". The New Year seems like a good time to forward this to you and add a few things myself as well (Surprise! I have an opinion!).
In a hissy fit of exaggeration, though, AdvisorOne passes along the inane idea that there is a "nationwide surge" in investment fraud, citing 1,241 regulatory actions in 2010 "more than double the 506 cases in 2009". The problem is "rampant" they chortle!
Well, we need some adult perspective here. If we eliminate the thousands of independent RIAs like myself, the top 16 broker-dealers have about 90,000 investment advisers working for them. Even if all of the regulatory actions were against individual advisers (some of the more serious were against their firms), that's a rate of just over one-tenth of one percent. To be more clear, that means out of every thousand advisers, one is a crook. "Gary, are you crazy? Defending your detestable competitors in the brokerage community?" No, I'm just trying to temper journalistic sensationalism. I mean, suppose in 2011 two of every thousand brokers were crooks. Oh no! Doubled again! Form another Federal agency!
All kidding aside, there are still serious concerns:
The State of Oregon has some great guidelines here for avoiding victimization by nefarious schemers here:
Avoid Investment Fraud and Abuse In addition, you can subscribe to their Consumer Alerts. I think their most important bit of advice is don't be embarrassed to report getting ripped off. You may help save someone else's life savings and/or recover your own. Most of us are no match for a skilled con artist.
Of course, it's best to avoid getting ripped off altogether by dealing only with independent Registered Investment Advisers who are legally required to put your interests first.
Like me.
In a hissy fit of exaggeration, though, AdvisorOne passes along the inane idea that there is a "nationwide surge" in investment fraud, citing 1,241 regulatory actions in 2010 "more than double the 506 cases in 2009". The problem is "rampant" they chortle!
Well, we need some adult perspective here. If we eliminate the thousands of independent RIAs like myself, the top 16 broker-dealers have about 90,000 investment advisers working for them. Even if all of the regulatory actions were against individual advisers (some of the more serious were against their firms), that's a rate of just over one-tenth of one percent. To be more clear, that means out of every thousand advisers, one is a crook. "Gary, are you crazy? Defending your detestable competitors in the brokerage community?" No, I'm just trying to temper journalistic sensationalism. I mean, suppose in 2011 two of every thousand brokers were crooks. Oh no! Doubled again! Form another Federal agency!
All kidding aside, there are still serious concerns:
- Those are just the ones who got caught
- Breaking the law
- And didn't quickly make things right to avoid regulatory action
- The law still does not hold Wall Street to a fiduciary standard, remember? Astoundingly, it is still legal for them to put their interests before yours. So even though brokers have a fiduciary relationship with their clients (click on that link to see the definitions of "fiduciary") they do not have a fiduciary obligation. It is unbelievable what it is still legal to inflict on the public.
The State of Oregon has some great guidelines here for avoiding victimization by nefarious schemers here:
Avoid Investment Fraud and Abuse In addition, you can subscribe to their Consumer Alerts. I think their most important bit of advice is don't be embarrassed to report getting ripped off. You may help save someone else's life savings and/or recover your own. Most of us are no match for a skilled con artist.
Of course, it's best to avoid getting ripped off altogether by dealing only with independent Registered Investment Advisers who are legally required to put your interests first.
Like me.
Tuesday, December 6, 2011
Myth: We Make Rational Financial Decisions
Very few aspects of our financial decision making are rational, if any (depending on the person!). Despite history, despite having been burned over and over and over, I see the same patterns repeating and it actually is making me nauseous this time. This isn't out of self-righteousness or superiority; I'm as bad as anyone, if not worse in some cases. Except when it comes your, my clients', money.
For example, variable annuity sales this quarter are the highest they've been since 3rd quarter 2007 according to the Insured Retirement Institute. Yes, that's right. Just before the last huge bubble burst. People are chasing returns again, against all odds, laden with hope and desperation, just like in most casinos I've visited. (I don't know about you, but I've never seen anyone smiling in a casino, usually not even the scantily clad "hostesses"). We're buying high so we can later sell low, compounding our losses.
Why do I make this claim? Because you would think in the midst of record demand for their products, annuity companies would be throwing open their doors. But yet another major variable annuity vendor is walking away: John Hancock. (Variable, by the way, means that your returns can vary, up and down. Pay attention to the "down" word.).
My preferred product at this point in the game is equity indexed annuities (EIAs). Here's a great little video explaining the basics: Reinventing Retirement Savings.
But even EIA companies are scaling back their guarantees, charging more for them, and reducing their minimum interest guarantees. One of my primary carriers, American Equity, is knocking- another -half a point off all its guarantees. Aviva, my favorite, is still hanging in there with its 2% minimum interest rate, several market indexes in which to participate, their unparalleled 7.2% income rider & high guaranteed payout rates on the income distribution side. Plus, no one else doubles that guaranteed income if you need long term care (a few conditions apply so you should read the full disclosure). All this for an annual fee of 0.75%, about half the average mutual fund fee for which you get no principal protection and no guaranteed income!
I expect a continuing trend of fee increases and benefit reductions as we head into the next bubble burst this coming year. Once your contract is in force, however, most of the provisions cannot be changed. Don't wait!
For example, variable annuity sales this quarter are the highest they've been since 3rd quarter 2007 according to the Insured Retirement Institute. Yes, that's right. Just before the last huge bubble burst. People are chasing returns again, against all odds, laden with hope and desperation, just like in most casinos I've visited. (I don't know about you, but I've never seen anyone smiling in a casino, usually not even the scantily clad "hostesses"). We're buying high so we can later sell low, compounding our losses.
Why do I make this claim? Because you would think in the midst of record demand for their products, annuity companies would be throwing open their doors. But yet another major variable annuity vendor is walking away: John Hancock. (Variable, by the way, means that your returns can vary, up and down. Pay attention to the "down" word.).
My preferred product at this point in the game is equity indexed annuities (EIAs). Here's a great little video explaining the basics: Reinventing Retirement Savings.
But even EIA companies are scaling back their guarantees, charging more for them, and reducing their minimum interest guarantees. One of my primary carriers, American Equity, is knocking- another -half a point off all its guarantees. Aviva, my favorite, is still hanging in there with its 2% minimum interest rate, several market indexes in which to participate, their unparalleled 7.2% income rider & high guaranteed payout rates on the income distribution side. Plus, no one else doubles that guaranteed income if you need long term care (a few conditions apply so you should read the full disclosure). All this for an annual fee of 0.75%, about half the average mutual fund fee for which you get no principal protection and no guaranteed income!
I expect a continuing trend of fee increases and benefit reductions as we head into the next bubble burst this coming year. Once your contract is in force, however, most of the provisions cannot be changed. Don't wait!
Wednesday, November 30, 2011
Myth: ObamaCare
Otherwise known as "ObamaCare" by its detractors (who thereby reveal they have never read the act), the Patient Protection and Affordable Care Act is one of the few bills excreted by Congress with congruence between its name and what it actually does. The "ObamaCare" label is inaccurate because- after massive tinkering by the health care industry & Congress -the bill is vastly different from the White House's initial "principles". Much miraculously made it through unscathed, however.
OK, Gary, what DOES it actually do? (I recommend you review the whole thing on Wikipedia:
http://en.wikipedia.org/wiki/Patient_Protection_and_Affordable_Care_Act)
Well, of many great provisions, one resounding success of the PPACA is reduction of Medicare/caid fraud. At a cost of $9.0 million last year (and with the help of 5000 volunteers), the bill's enforcement provisions returned over $4.0 billion to the Medicare Hospital Insurance Trust Fund, IRS & other agencies. Let's see. Isn't that a 44,444% return on the dollar? Not bad for government work. Naturally, Congressional puppets of the health "care" industry fought this provision tooth and nail.
I'll look at other great parts of this bill in future blogs.
OK, Gary, what DOES it actually do? (I recommend you review the whole thing on Wikipedia:
http://en.wikipedia.org/wiki/Patient_Protection_and_Affordable_Care_Act)
Well, of many great provisions, one resounding success of the PPACA is reduction of Medicare/caid fraud. At a cost of $9.0 million last year (and with the help of 5000 volunteers), the bill's enforcement provisions returned over $4.0 billion to the Medicare Hospital Insurance Trust Fund, IRS & other agencies. Let's see. Isn't that a 44,444% return on the dollar? Not bad for government work. Naturally, Congressional puppets of the health "care" industry fought this provision tooth and nail.
I'll look at other great parts of this bill in future blogs.
Wednesday, November 2, 2011
Clients Prefer Financial Specialists- NOT
Financial services marketing powerhouse, Genworth Financial, conducted a recent survey- the LifeJacket Study -to assess what you and I think. The numbers below surprised me . . . because they support what I've always believed: most of us want a one-stop shop when it comes to financial services, and, many of us let things slide until it's too late. (Genworth Financial is probably best known for its life and long term care insurance. They are usually in the top three when I do my Top 12 company search for life and long term care clients. They have the best rates for tobacco users too.) Here are the numbers.
Genworth's LifeJacket Study revealed surprising
statistics about the current life insurance marketplace:
- 52 million Americans with household incomes between $50,000 and $250,000 do not have coverage [they think they're immortal]
- 40% of those who have insurance don't think they have enough
- $155,000 is the national average death benefit [better than nothing!]
-
66% of consumers believe that a financial adviser should offer
life insurance as part of their overall financial strategy [emphasis mine]*
- 60% of respondents who own life insurance want to meet with their adviser at least once a year [I must have the other 40%!]
- 77% indicated that they don't expect their annual review to be a lengthy meeting – an hour or less will do [ I feel the same way. Honest. I'm military about ending on time.]
The LifeJacket Study reveals valuable insights needed to educate and motivate yourself to help secure your financial future, to preserve your wealth. Download the study to learn more.
I'm a firm believer in self-education!
*The way regulatory trends are going, I think soon only licensed financial advisers will be able to recommend life insurance to the public due to the inherent & profound fiduciary responsibility such a recommendation entails. Few of us have the patience to find & evaluate the top dozen policies in any given State. And the Top 12 will vary widely for each individual because each company has its marketing sweet spot, the segment of the population in which it thinks it can best compete.
Friday, October 28, 2011
Medicare, hooboy!
Don't you love it when the Medicare Open enrollment period comes around every year? I'm not even eligible yet but I've been getting all kinds of junk in the mail about which Medicare plan to buy. And I hear that there is no lack of TV advertising. (Oddly, the enrollment period was changed from 11/15-12/31 as in years past to 10/15-12/7.) But here's the common element: these ads and mail pieces encourage you to visit their website or call one of their "advisers" to determine which plan is best for you.
I have a better strategy for you: Visit www.medicare.gov and use their quick and easy search engine instead. I just did it myself and 59 medical and drug plans in my zip code 97086 popped up. If I narrow the search to Medicare Health plans with drug coverage the number drops to 11, including Original Medicare, with 5 different companies. But even so, can you imagine calling 20 different companies to find and compare your expected total annual out of pocket risk for all 11 plans?
Well, you don't have to. Just select "sort results by lowest estimated annual health and drug cost" button and the search engine does it for you. Or, if you're on lots of prescriptions (I'm not on any) you can key in all of them to find out which plan will give you the lowest out of pocket cost for your drugs.
So your first stop should be www.medicare.gov If you need help navigating this arena, just call or email me: 503-698-1110 g@garyduell.com
Saturday, October 22, 2011
Myth: More is better, or, Why I downsized.
Not that it's that interesting but I recently made some big changes:
When I do venture out into the big city the traffic jams astound me. what an insane way to live! Why does anyone tolerate it? What if, instead of building more roads in the metro area, we developed a super database of workers and jobs, then did a massive job exchange so people could work closer to where they live? What if, instead of building the boondoggle called the Columbia River Crossing, we spent a tenth as much converting office jobs to online jobs so the Vancouverites didn't have to come over here?
Yes, life should be simpler.
- I closed my office and moved it back into my home.
- I got rid of pickup loads of stuff. And then I sold my pickup.
- I'm as vegetarian as I can be. In his book Eating Animals Jonathan Foer points out that since it has been proven we can survive quite well (at least in this country) without eating animals, shouldn't we at least try to do so?
- I rarely buy coffee out anymore, making my own at home.
- I bike everywhere I can, when I can.
- If I have to drive, I try to accomplish at least three tasks per trip.
- After having to move boxes and boxes of books I now don't buy any book unless I've already checked it out from the library & can't live without it, or, if the library doesn't have it.
- My practice is virtually paperless. I constantly beg all my companies to email rather than mail. (One of my most progressive companies, Assurant Health, is going to begin delivering policies digitally only. Yay! One of my least progressive companies, Ohio National Life, still sends me single sheets of paper in 9x12 envelopes.) The paper I do get is scanned and then shredded.
- My business itself has a very small carbon footprint. I make a huge difference in the lives of many people without creating much waste, if any, simply by rearranging pixels on my screen. Miraculous! Some paper is still involved, unfortunately.
- I hold my breath for one minute every hour to reduce my CO2 emissions. Kidding.
When I do venture out into the big city the traffic jams astound me. what an insane way to live! Why does anyone tolerate it? What if, instead of building more roads in the metro area, we developed a super database of workers and jobs, then did a massive job exchange so people could work closer to where they live? What if, instead of building the boondoggle called the Columbia River Crossing, we spent a tenth as much converting office jobs to online jobs so the Vancouverites didn't have to come over here?
Yes, life should be simpler.
Tuesday, August 2, 2011
MYTH: The Debt Ceiling is the most pressing issue facing Americans
Yes, despite all the hysteria in the media, the windbags in Congress and most people I talk to, the debt ceiling is much ado about nothing. Congress and the President are playing a game of chicken to distract you from what you should really care about: the greatest theft of wealth from you and me in the history of the world. Some of that wealth is absolutely priceless, which I'll clarify in a minute. I am exasperated by the failure of virtually every arm of the media to document this reality. But after a lifetime of training-by TV -we have come to prefer drama over data, sensation over sobriety, raciness over reality.
Dennis Kucinich, despite himself, has an excellent article at CommonDreams. I will summarize his list of the scale and means by which this theft is taking place while adding some history, details, and of course opinions. All of these means serve to fleece all of us in order to enrich a few:
Dennis Kucinich, despite himself, has an excellent article at CommonDreams. I will summarize his list of the scale and means by which this theft is taking place while adding some history, details, and of course opinions. All of these means serve to fleece all of us in order to enrich a few:
- War. Our so-called "defense" department was sanitized from its former more accurate name "Department of War" back in 1947. Our war-making consumes half of discretionary spending and we spend more than all other countries combined. President Eisenhower warned us of the Congressional/Industrial/Military complex (later, as a courtesy, he dropped "Congressional"). We didn't heed his warning and now we're being bled to death by it in two ways. First, multinational corporations now exploit our military as their free mafia-like "enforcer", allowing them to destroy their competition and take over markets in ways that would be illegal were they to do it themselves. That's what Iraq was all about and what most of our involvement in the Middle East is all about: oil & oil infrastructure. Although it would be far less costly- financially and in human sacrifice - and phenomenally quicker to simply reduce our energy consumption, the current energy market titans wouldn't make any money that way. And they own Congress. Secondly, most of the products manufactured by the MIC have no spin-off economic effects; they end up idle, destroyed or abandoned in the sand. If you build a new school in an under-served community, the effects are profound, immediate & long term as well. A $35 mil. helicopter sitting on the tarmac in Afghanistan really helps us out here, doesn't it? Every billion dollars spent on war cost us at least 3200 jobs. See War Costs.
- Which brings us to Energy and the Environment. Current environmental & energy laws and policies guarantee the transfer of massive monetary and, more importantly, resource wealth from all of us to the coffers of a few. Some decry regulations as too strict, stifling business, hurting the economy. This isn't true but if even it were that is a short-term view. Our lack of self-discipline & reverence for this Earth is nothing but thievery from our own futures as well as other living things on the globe.
- Insurance industry. I part ways with Senator Kucinich here. The insurance industry is complex and varied. There are real scoundrels as well as saints. The important question is, who adds value and who simply siphons off profits? The test of who adds value is this: does the company provide insurance benefits, that is, transferring risk away from consumers? I agree that health insurers add little to no value- and even subtract from -the health care transaction. For far less in expenditures, a single payer system would produce better health results for all of us. It is ridiculous, and astonishingly immoral, that we have people with health insurance still going bankrupt from medical bills. Property insurers, annuity companies, life insurers, disability insurers all perform genuine insurance functions, giving us tremendous leverage for relatively little cost.
- Wall Street & the Banksters- now larger and more powerful than before the last crash & subsequent financial "reform", these guys are shameless, paying themselves record bonuses out of bailout funds paid by . . . you and me! Need I say more? What we need is genuine transparency and tax rates for speculators that are the same as those for working stiffs. Taxes, like death, are not fair. They are necessary. And currently our public revenue streams are abysmally inadequate for maintaining the infrastructure, the commons, necessary for a civilized society.
- Money Supply- I don't know enough about The Fed to weigh in here but I do know that our money supply never should have been privatized. Just look what would have happened to Social Security if our trust fund had been handed over to Wall Street three years ago; it would be bankrupt now.
Tuesday, July 12, 2011
This is no Myth: Big hitters weigh in on annuities
In another blow to the lousy financial advice promulgated by Rupert Murdoch's media empire, three major sources have sung the praises of annuities. Especially significant is how annuities can be used to help delay Social Security benefits to full retirement age. I'll give my sources credit for this info. See the following link:
Robert Powell from MarketWatch
Powell bases most of his remarks on recent studies completed by the GAO and Putnam investments. He goes on to recommend that seniors have no more than "5-25%" of their money in the stock market to ensure they don't run out of money.
This is even more conservative than my Rule of 100, which simply states that 100 minus your age is the percent of your assets you should have at risk in "the market" which, in my practice, includes the real estate market. Most folks I meet with already have way too much at risk via their home equity. Throw in their retirement savings and most are upside down in risk allocation. Why take risk at all if you can generate sufficient lifetime income without taking any??
Robert Powell from MarketWatch
Powell bases most of his remarks on recent studies completed by the GAO and Putnam investments. He goes on to recommend that seniors have no more than "5-25%" of their money in the stock market to ensure they don't run out of money.
This is even more conservative than my Rule of 100, which simply states that 100 minus your age is the percent of your assets you should have at risk in "the market" which, in my practice, includes the real estate market. Most folks I meet with already have way too much at risk via their home equity. Throw in their retirement savings and most are upside down in risk allocation. Why take risk at all if you can generate sufficient lifetime income without taking any??
Thursday, June 30, 2011
Finally, A Financial Publisher with a Positive Spin on Annuities- Barron's
Go to this link to read for yourself a very intelligent (finally) appraisal of annuities, oddly enough, in the financial press: http://webreprints.djreprints.com/44207.html
Advisers like myself who have been recommending annuities for the last four years don't need a journalist to tell us how good they are; we have direct experience. Annuities are ideal for avoiding at least the following risks:
Advisers like myself who have been recommending annuities for the last four years don't need a journalist to tell us how good they are; we have direct experience. Annuities are ideal for avoiding at least the following risks:
- Market risk- Your principal is- or can be, even with variable annuities -protected from downside risk.
- Inflation Risk- Stereotypically "safe" havens like CDs & bank savings accounts while FDIC insured nontheless guarantee that you will lose money due to inflation. The returns on these types of accounts have historically nearly always lagged behind inflation. Substantially. Several annuity lifetime income riders available can guarantee increasing income that will outpace inflation.
- Longevity risk- In the days when we only lived 5-7 years beyond retirement, this wasn't much of a risk. But now that we live 20 or even 30 years after retirement, the risk of running out of dough is substantial. Laddered annuity income riders can guarantee lifetime income.
Monday, June 13, 2011
MYTH: "YOU CAN TRUST US!"
Even an old goat like myself can learn something new (several times a day, as a matter of fact). Until today, I did not know there was such a thing as the Death Master File. Although one may think this is one of Satan's nefarious databases, rather, it is issued weekly by the Social Security Administration (SSA). Hey, wait a minute (kidding). How is this file used?
Well, this is very clever. Turns out John Hancock was brilliantly both using, and not using, the database to boost its profits. Here's how: John Hancock sells both life insurance and annuities. Annuity companies are anxious to find deceased owners of annuitized contracts because then they can stop making payments; most annuitized income streams end at the death of the annuitant (unless more intelligently structured which, unfortunately, most aren't). So Hancock was using the list to find people to whom they could cease writing checks. That's how they used the list.
The way they chose to not use the list was for finding deceased life insurance owners. Until the state of Florida caught them. Suppose, for example, your late uncle owned a paid up life insurance policy naming you as a beneficiary. Oregon, and virtually all other states, require all known unclaimed property to be reported to the State, even as little as twenty cents! Hancock simply chose not to know.
So how would you know? If no one could find the policy, who would know whether or where to submit a death claim? And the policy was paid up so there would be no check register entries to clue you in. Since Hancock already has the Death Master List, wouldn't they use it to the benefit of their customers, to notify the beneficiaries of the policy's existence? I guess not. As a result, millions of dollars of potential life insurance claims ended up as unclaimed property. So Hancock agreed to set up a $10 mil. fund to pay past claims. To be fair, Florida Insurance Commissioner Kevin McCarty believes this is a pervasive industry practice not John Hancock's exclusive scheme. And, you can use the National Association of Insurance Commissioners' website to see if your newly departed had a life insurance policy. I have no idea how reliable it is.
How can you prevent this from happening to your family? (In Oregon there is over $350 mil. in unclaimed property which, by the way, earns interest that is paid to the Common School fund.) Get one of my Getting Your Estate in Order booklets (have to come meet with me; too heavy to mail), which includes a complete financial records data sheet. Or, simply get your will done and include a Letter of Instruction listing the locations and contact info. for all important policies, advisers & documents. After all, the devil's in the details.
Well, this is very clever. Turns out John Hancock was brilliantly both using, and not using, the database to boost its profits. Here's how: John Hancock sells both life insurance and annuities. Annuity companies are anxious to find deceased owners of annuitized contracts because then they can stop making payments; most annuitized income streams end at the death of the annuitant (unless more intelligently structured which, unfortunately, most aren't). So Hancock was using the list to find people to whom they could cease writing checks. That's how they used the list.
The way they chose to not use the list was for finding deceased life insurance owners. Until the state of Florida caught them. Suppose, for example, your late uncle owned a paid up life insurance policy naming you as a beneficiary. Oregon, and virtually all other states, require all known unclaimed property to be reported to the State, even as little as twenty cents! Hancock simply chose not to know.
So how would you know? If no one could find the policy, who would know whether or where to submit a death claim? And the policy was paid up so there would be no check register entries to clue you in. Since Hancock already has the Death Master List, wouldn't they use it to the benefit of their customers, to notify the beneficiaries of the policy's existence? I guess not. As a result, millions of dollars of potential life insurance claims ended up as unclaimed property. So Hancock agreed to set up a $10 mil. fund to pay past claims. To be fair, Florida Insurance Commissioner Kevin McCarty believes this is a pervasive industry practice not John Hancock's exclusive scheme. And, you can use the National Association of Insurance Commissioners' website to see if your newly departed had a life insurance policy. I have no idea how reliable it is.
How can you prevent this from happening to your family? (In Oregon there is over $350 mil. in unclaimed property which, by the way, earns interest that is paid to the Common School fund.) Get one of my Getting Your Estate in Order booklets (have to come meet with me; too heavy to mail), which includes a complete financial records data sheet. Or, simply get your will done and include a Letter of Instruction listing the locations and contact info. for all important policies, advisers & documents. After all, the devil's in the details.
Thursday, June 9, 2011
Myth: The Stock Market will always out-perform all other investment options
Yours truly used to spout this myth, about betting on the ingenuity and hard work of the American worker, that "productive America", (which at the time implied Wall Street & the Banksters as opposed to actual workers actually working) would perpetually deliver us the American dream. I also used to- and still do -issue the caveat that past performance is no guarantee of future results. How are those two positions supposed to fit together? They don't. Which is why I've since abandoned the first one. Because there are universal laws which, for example, prevent trees from growing into outer space. And trees don't lie. Similar "laws" apply to the financial world, and let me emphasize "world".
As I sit here at my desk looking at the two major indexes- DJI and the S&P 500 -I note that the Dow is now lower than it was at the end of 2006 and has grown a total of 8% since the peak of 1/21/2000! The S&P is at the same level as March 1999. Yet practically all I hear from people is how they've "made a fortune" in the last year. Granted, an index does not include dividends. But neither does it include fees & taxes so I think it's a fair performance evaluation of what Wall Street is actually delivering: astounding wealth to itself.
Suppose, to illustrate, you had invested $100,000 with your broker 11 years ago and paid the low average mutual fund annual fee of 1.3%. In addition, your broker charged you the low average 1% management fee. Right now your money is worth the same as it was 11 years ago. But you've lost 25% of what you could have gotten because of commissions and fees (2.3% x 11 years)! Study after study shows an inverse relationship between high management fees and performance. What could you have done instead?
Wall Street "gurus" like Ken Fisher & financial narcissists like Suze Orman like to trash annuities because, as I've said before, annuities make them unnecessary, proverbial tits on a boar. And rather expensive tits at that as we've seen above. But hey, they've shown us theirs, I'll show you mine!
Let's pretend it's 11 years ago and you pay me an indexed annuity premium of $100,000 and opt for the 8% lifetime income rider at an annual cost of 0.45% (yes, less than half a percent), and, the S&P500 index crediting strategy. Other fees, commissions and expenses total . . . zero. Today, your principal balance would be about $172,000. You could also rest assured that it would never ever be less than that in the future, unless you take withdrawals. And, if you were now 65, your guaranteed lifetime income- should you decide to turn it on, without surrendering your principal by the way -would be approximately $1000/mo. Or, you could simply walk away with your $172,000 with no fees or penalties. Aren't indexed annuities just absolutely evil?! In fact, they are so evil and expensive that Americans gave in excess of $31,400,000,000 to indexed annuity companies last year.
Annuity terms aren't nearly as favorable these days because annuity companies by nature are extremely conservative; they present themselves as bastions of safety and rightly so. ( I know of no annuity owner who has lost money ever, unless they violated the provisions of their contract, such as excessive withdrawals or premature surrender.) So, they have had to increase fees and/or reduce guarantees. Even so, with $100,000 today at age 55 I can guarantee that in 10 years you will enjoy $11,442 annual income for life. And even if the market tanks or is flat for the entire ten years, I can also guarantee you will walk away with no less than $129,213 if you choose that option instead of the income. Try that with Wall Street or CDs from the Banksters! Impossible.
As I sit here at my desk looking at the two major indexes- DJI and the S&P 500 -I note that the Dow is now lower than it was at the end of 2006 and has grown a total of 8% since the peak of 1/21/2000! The S&P is at the same level as March 1999. Yet practically all I hear from people is how they've "made a fortune" in the last year. Granted, an index does not include dividends. But neither does it include fees & taxes so I think it's a fair performance evaluation of what Wall Street is actually delivering: astounding wealth to itself.
Suppose, to illustrate, you had invested $100,000 with your broker 11 years ago and paid the low average mutual fund annual fee of 1.3%. In addition, your broker charged you the low average 1% management fee. Right now your money is worth the same as it was 11 years ago. But you've lost 25% of what you could have gotten because of commissions and fees (2.3% x 11 years)! Study after study shows an inverse relationship between high management fees and performance. What could you have done instead?
Wall Street "gurus" like Ken Fisher & financial narcissists like Suze Orman like to trash annuities because, as I've said before, annuities make them unnecessary, proverbial tits on a boar. And rather expensive tits at that as we've seen above. But hey, they've shown us theirs, I'll show you mine!
Let's pretend it's 11 years ago and you pay me an indexed annuity premium of $100,000 and opt for the 8% lifetime income rider at an annual cost of 0.45% (yes, less than half a percent), and, the S&P500 index crediting strategy. Other fees, commissions and expenses total . . . zero. Today, your principal balance would be about $172,000. You could also rest assured that it would never ever be less than that in the future, unless you take withdrawals. And, if you were now 65, your guaranteed lifetime income- should you decide to turn it on, without surrendering your principal by the way -would be approximately $1000/mo. Or, you could simply walk away with your $172,000 with no fees or penalties. Aren't indexed annuities just absolutely evil?! In fact, they are so evil and expensive that Americans gave in excess of $31,400,000,000 to indexed annuity companies last year.
Annuity terms aren't nearly as favorable these days because annuity companies by nature are extremely conservative; they present themselves as bastions of safety and rightly so. ( I know of no annuity owner who has lost money ever, unless they violated the provisions of their contract, such as excessive withdrawals or premature surrender.) So, they have had to increase fees and/or reduce guarantees. Even so, with $100,000 today at age 55 I can guarantee that in 10 years you will enjoy $11,442 annual income for life. And even if the market tanks or is flat for the entire ten years, I can also guarantee you will walk away with no less than $129,213 if you choose that option instead of the income. Try that with Wall Street or CDs from the Banksters! Impossible.
Tuesday, May 31, 2011
Ken Fischer Part II- debunking "Debunkery"
It is clear that Ken Fisher dislikes annuities. It is also clear why: they make him unnecessary.
What is unclear is, "Then why do investors love them??" Well because of:
Chapter 15 trashes Variable Annuities (VAs), which they mostly deserve. But the chapter contained such a glaring error that it warrants examination. The author (we don't really know if it's Ken Fisher) states that the annuity subaccounts or separate accounts are subject to the financial risk of the insurance company, which is not true. That's why they are called "separate" accounts. The insurance company can go bankrupt but your subaccounts will not go with them.
Plus, the vast majority of these annuities- to the credit of the advisers who sell them -are set up with one or more principal, growth or income guarantees. I don't use VAs anymore because of the high fees necessary to avoid the volatility of the separate accounts.
What is unclear is, "Then why do investors love them??" Well because of:
- Protection of principal
- Predictable future minimum values
- Lack of market risk
- Guaranteed lifetime income
- Leveraged death benefits for heirs
- Inflation protection
Chapter 15 trashes Variable Annuities (VAs), which they mostly deserve. But the chapter contained such a glaring error that it warrants examination. The author (we don't really know if it's Ken Fisher) states that the annuity subaccounts or separate accounts are subject to the financial risk of the insurance company, which is not true. That's why they are called "separate" accounts. The insurance company can go bankrupt but your subaccounts will not go with them.
Plus, the vast majority of these annuities- to the credit of the advisers who sell them -are set up with one or more principal, growth or income guarantees. I don't use VAs anymore because of the high fees necessary to avoid the volatility of the separate accounts.
Monday, May 23, 2011
Is Wall Street Guru Ken Fisher Losing It?
The most dangerous books are those with a lot of truths mixed with a lot of falsehoods. The ironically named newly published "Debunkery" is one of those books. Let me focus on just Chapter 16 for which I have particular abhorrence because it contains so much false information that should have been easily researched. The chapter deals with Equity Indexed Annuities (EIAs) which I love.
1. Annuities are a tough sale "(that's why they pay such big commissions to salespeople!)" he chortles. "Big" compared to what? Yes, EIAs are such a tough sale that Wall Street lost over $60 billion to them in the last two years. If Ken Fisher manages your money over a ten year period you will pay him far more in commissions. Far more. And you will pay it whether you gain or lose. And his commissions will come out of your money, not his company's. This is not only a false argument, it is irrelevant. The key is, do EIAs deliver anything important? $60 billion dollars think so.
2. The account value of EIAs "fluctuates up and down with the market like any other investment, albeit with much higher fees". TOTALLY FALSE! Your account value can never go backwards unless you make withdrawals. I'll say it again: Your account value can never go backwards unless you make withdrawals. Which drives stock brokers like Ken Fisher crazy because they cannot make such a promise.
3. The best EIAs offer guaranteed lifetime income. This is true. But Fisher goes on to say, "The income base doesn't really apply unless you decide to surrender ownership of the account in return for regular distributions . . ." Well actually it really does apply. And you DO NOT SURRENDER OWNERSHIP OF THE ACCOUNT! That was true maybe ten years ago Kenny.
4. "Participate in the stock market's upside with no downside risk!" This is sort of true. But actually you participate in a market index such as the S&P 500 or Russell 2000. And yes, returns are "capped" or participation rates are limited. But this fact is never "hidden in the details". Never. EIAs are not intended to compete with the gambler's greed that drives the stock market, they are intended to protect people FROM the market.
5. Finally, Ken goes on to describe a "very wretched" tactic of EIAs: not including dividends in the S&P 500 index performance. Well don't blame the annuity, blame the index which of course does not include dividends because it tracks only stock values. To get dividends you have to actually own the stocks in the index. EIAs don't put your money in stocks. That's why they are safe!
Well, it was fun to debunk at least this one chapter. But this is the most self-serving book of lies I've read in a long time.
1. Annuities are a tough sale "(that's why they pay such big commissions to salespeople!)" he chortles. "Big" compared to what? Yes, EIAs are such a tough sale that Wall Street lost over $60 billion to them in the last two years. If Ken Fisher manages your money over a ten year period you will pay him far more in commissions. Far more. And you will pay it whether you gain or lose. And his commissions will come out of your money, not his company's. This is not only a false argument, it is irrelevant. The key is, do EIAs deliver anything important? $60 billion dollars think so.
2. The account value of EIAs "fluctuates up and down with the market like any other investment, albeit with much higher fees". TOTALLY FALSE! Your account value can never go backwards unless you make withdrawals. I'll say it again: Your account value can never go backwards unless you make withdrawals. Which drives stock brokers like Ken Fisher crazy because they cannot make such a promise.
3. The best EIAs offer guaranteed lifetime income. This is true. But Fisher goes on to say, "The income base doesn't really apply unless you decide to surrender ownership of the account in return for regular distributions . . ." Well actually it really does apply. And you DO NOT SURRENDER OWNERSHIP OF THE ACCOUNT! That was true maybe ten years ago Kenny.
4. "Participate in the stock market's upside with no downside risk!" This is sort of true. But actually you participate in a market index such as the S&P 500 or Russell 2000. And yes, returns are "capped" or participation rates are limited. But this fact is never "hidden in the details". Never. EIAs are not intended to compete with the gambler's greed that drives the stock market, they are intended to protect people FROM the market.
5. Finally, Ken goes on to describe a "very wretched" tactic of EIAs: not including dividends in the S&P 500 index performance. Well don't blame the annuity, blame the index which of course does not include dividends because it tracks only stock values. To get dividends you have to actually own the stocks in the index. EIAs don't put your money in stocks. That's why they are safe!
Well, it was fun to debunk at least this one chapter. But this is the most self-serving book of lies I've read in a long time.
Thursday, April 21, 2011
Myth: America is Different From Ancient Rome
At this excellent post, six parallels are drawn between ancient Rome (Which- key point -doesn't exist anymore by the way, in case you missed the memo) and the USA:
http://www.progressivereader.com/?p=812
In addition to these six, I would add #0: Massive and growing income and wealth disparity. Wealth oils the economic engine and if too much lubricant languishes in the oil pan, key engine parts can seize up from oil disparity. This metaphor doesn't dictate equal distribution, just sufficient distribution to keep all the parts moving together. That should appease the Ayn Rand people.
I'll summarize the six key points from Cullen Murphy's book, "Are We Rome?, the fall of an empire and the fate of America", the six scary ways in which we're similar to that failed empire:
http://www.progressivereader.com/?p=812
In addition to these six, I would add #0: Massive and growing income and wealth disparity. Wealth oils the economic engine and if too much lubricant languishes in the oil pan, key engine parts can seize up from oil disparity. This metaphor doesn't dictate equal distribution, just sufficient distribution to keep all the parts moving together. That should appease the Ayn Rand people.
I'll summarize the six key points from Cullen Murphy's book, "Are We Rome?, the fall of an empire and the fate of America", the six scary ways in which we're similar to that failed empire:
- The way we look at ourselves- We think the rest of the world revolves around us. "Unfortunately, it’s not a self-fulfilling prophecy—just a faulty premise." Such arrogance, even if deserved- it isn't -blinds a society to its weaknesses as well as to lessons to be learned from other countries. Can you say "national healthcare"?
- The way we run our military- Two points here; the widening gap between our military and civilian societies and, closely related, a shortage of manpower. Most of us feel no responsibility for the physical defense of our country, unlike Germany for example which has mandatory military service. As a result, Rome had to hire "barbarians" (i.e. "enemies") which didn't make much sense and didn't work out that well either. The USA has also hired barbarians: Al-Qaeda, Haliburton, Whackenhut & Blackwater (now sanitized as "Xe Services LLC) to name a few.
- The way we privatize (in other words, corrupt) public services- As the book points out, aside from the conflicts of interest that result, when boundaries blur between public and private resources it becomes easier to privatize profits and socialize losses. Is water a public resource? How about tax revenue? Banking? Yes, they are. Or were.
- The way we look at others- Arrogance about our capabilities and capacities (based, I believe, in a pervasive inferiority complex) and disparagement of non-Americans has the result that "either we don’t see what’s coming at us, or, we don’t see what we’re hurtling toward.” Or both and. Dangerous.
- The way we set our borders- I'm not sure I agree this matters much, but the similarity is that we and Rome resist a mutually beneficial permeability with our neighbors. We gnash our nationalistic teeth without asking whether we're harming ourselves or protecting ourselves.
- The way we can't control consequences- I would rephrase this to: The way we think we can violate basic adult principles- e.g. fairness, compassion -without expecting our victims to react. "Control" isn't really the issue anyway. In fact, it is our resistance to being affected by the rest of the world that will be our demise. As John Cage so aptly opined, "I don't know why people are so afraid of new ideas. It's the old ones I'm afraid of." But it is true; the larger and more complex we allow ourselves to become, the more susceptible we are to events beyond our control. So in the face of that given, wouldn't it make sense to adhere to just a few ideals, like truth, justice and simplicity?
What's with Ameriprise anyway?
Due to complete lack of quality control, Ameriprise (actually its subsidiary broker-dealer, Securities America) was sued by investors when a couple of large Ponzi schemes were told to them by Securities America representatives. Initially attempting to settle for five cents on the dollar, it appears the ante has been bumped up to about nineteen cents by all parties involved. Investors will have to approve the settlement, however.
Let me ask you this, though. Should the representatives who sold this junk have to return their commissions? Because they won't have to, under this settlement. I think they should. That would add another $20-30 mil. to the settlement, by the way. From what swamp did this gaseous ethic arise, that it's OK to screw people and then reward one'sself for it? Why is it still going on???
Well, because Congress let the Banksters & Wallstreet exempt themselves from a fiduciary standard of care with the public. I have ranted at length about this word, "fiduciary", and will continue to do so until at least both the people who read my blog get it. Look it up. It is a good word. Anyone who gives financial advice or sells financial products should have to meet this standard, which exceeds even the Golden Rule.
Let me ask you this, though. Should the representatives who sold this junk have to return their commissions? Because they won't have to, under this settlement. I think they should. That would add another $20-30 mil. to the settlement, by the way. From what swamp did this gaseous ethic arise, that it's OK to screw people and then reward one'sself for it? Why is it still going on???
Well, because Congress let the Banksters & Wallstreet exempt themselves from a fiduciary standard of care with the public. I have ranted at length about this word, "fiduciary", and will continue to do so until at least both the people who read my blog get it. Look it up. It is a good word. Anyone who gives financial advice or sells financial products should have to meet this standard, which exceeds even the Golden Rule.
Monday, March 7, 2011
A Massively Wealthy King Motivates Us & Makes Us Feel Secure
Unfortunately, this myth is partially true. Especially due to the manner in which mainstream media portrays what it means to be "wealthy" (having lots of stuff and power), most of us harbor an irrational belief that we, too, have a shot at it. In truth, it's a snowball's chance in hell.
Non-mainstream publication Mother Jones, has an excellent article that was forwarded to me by one of my good progressive friends, which he titled "Something even a Tea Partier should be able to understand"
Sure it's important to have the hope of being well rewarded for hard work, brains & creativity. But our current system merely rewards wealth with more wealth and power with more power, regardless of merit. Exceptions abound, of course. But they are few and far between. The reality is that meritless accumulation of wealth is rampant while the highway to the American Dream is in shambles. The attempted union busting in Wisconsin by the billionaire Koch brothers is a recent case in point.
So who cares? Income disparity is a fact of life, right? Yes, to a certain extent. Until it becomes malignant mental illness. Here's an interesting article "Why Income Disparity Matters", a post by Charles Wheelan. The key comment, in my opinion:
"There's a very interesting strain of economic research showing that our sense of well-being is determined more by our relative wealth than by our absolute wealth.
In other words, we care less about how much money we have than we do about how much money we have relative to everyone else. In a fascinating survey, Cornell economist Robert Frank found that a majority of Americans would prefer to earn $100,000 while everyone else earns $85,000, rather than earning $110,000 while everyone else earns $200,000.
Think about it: People would prefer to have less stuff, as long as they have more stuff than the neighbors ."
Is it just me who thinks that's crazy, wacko, bananas, and amazing? What's worse, with the super-rich, I believe they are not happy unless they have more than they did a year ago, or last month, or even yesterday regardless of how they compare to others. They want to be kings and queens except without any sense of responsibility to or leadership of the very society that enables their wealth. That is what's known as sociopathy.
If you research past very successful former civilizations, the number one reason for their demise was wealth disparity. Are we headed down the same chute?
Non-mainstream publication Mother Jones, has an excellent article that was forwarded to me by one of my good progressive friends, which he titled "Something even a Tea Partier should be able to understand"
Sure it's important to have the hope of being well rewarded for hard work, brains & creativity. But our current system merely rewards wealth with more wealth and power with more power, regardless of merit. Exceptions abound, of course. But they are few and far between. The reality is that meritless accumulation of wealth is rampant while the highway to the American Dream is in shambles. The attempted union busting in Wisconsin by the billionaire Koch brothers is a recent case in point.
So who cares? Income disparity is a fact of life, right? Yes, to a certain extent. Until it becomes malignant mental illness. Here's an interesting article "Why Income Disparity Matters", a post by Charles Wheelan. The key comment, in my opinion:
"There's a very interesting strain of economic research showing that our sense of well-being is determined more by our relative wealth than by our absolute wealth.
In other words, we care less about how much money we have than we do about how much money we have relative to everyone else. In a fascinating survey, Cornell economist Robert Frank found that a majority of Americans would prefer to earn $100,000 while everyone else earns $85,000, rather than earning $110,000 while everyone else earns $200,000.
Think about it: People would prefer to have less stuff, as long as they have more stuff than the neighbors ."
Is it just me who thinks that's crazy, wacko, bananas, and amazing? What's worse, with the super-rich, I believe they are not happy unless they have more than they did a year ago, or last month, or even yesterday regardless of how they compare to others. They want to be kings and queens except without any sense of responsibility to or leadership of the very society that enables their wealth. That is what's known as sociopathy.
If you research past very successful former civilizations, the number one reason for their demise was wealth disparity. Are we headed down the same chute?
Monday, February 28, 2011
Large Corporations Need Tax Relief
I remind you, just to be sure, that these blog post headings are FALSE. Alright. According to a recent article at ThinkProgress, if you have change in your coin purse, you possess more than the combined income tax liability of GE, ExxonMobil, Citibank, and the Bank of America, all of whom recently reported record-breaking profits and all of whom receive billions in subsidies from . . . you and me.
Friday, January 28, 2011
MONEY magazine gives good advice
Lest there be any possible misunderstanding, the heading of this post is a MYTH, OK? A solid myth.
In a recent article, MONEY vilified Equity Indexed Annuities (EIAs) focusing, naturally, on the most sensational anecdotes, worst products, most corrupt advisers & most heinous practices.
Their main talking point was that there were a couple of options other than EIAs that have performed better over the last couple of years. I don't dispute that. Unfortunately, MONEY apparently didn't know what those options were in 2007 because in Ben Stein's "Perfect Portfolio" article he recommended 90% of your money be exposed to the market, 5% in real estate & 5% in energy. He then goes on to recommend "20% of your portfolio in cash", (which adds up to 120% by the way).
So let's compare Ben's Perfect Portfolio with an equity indexed annuity between 2007 and 2011. (I have to confess that it gives me great pleasure to write this next sentence.) With $100,000 in Ben's portfolio you would still be down 30%, meaning you would need to gain 42.85% this year just to be even with where you were in 2007. Impossible. What if I had planned to retire this year, Ben?
In contrast, how would the EIA have performed? With just the average mediocre EIA, you would now have no less than $115,829 assuming a 6% bonus & minimum guaranteed rate of 3%. In addition, had you planned to retire this year, your Income Account Value would be $145,911 which would provide you with lifetime guaranteed income of $8025.yr. (Try that with a CD) At that rate of withdrawal, Ben's portfolio would run out in 8.7 years unless it enjoyed pretty hefty future returns. Which is unlikely. The key point here is that EIAs are for your safe money. They are never intended to compete with aggressive growth portfolios, even though they coincidentally competed quite well over the last ten years.,
It's easy to look back in time and rag on someone else's advice. But it's hypocritical to do so without applying the same magnifying glass to your own recommendations. The vast majority of Registered Investment Advisers want the absolute best options they can find for their clients. Too bad Wall Street can't make the same claim.
In a recent article, MONEY vilified Equity Indexed Annuities (EIAs) focusing, naturally, on the most sensational anecdotes, worst products, most corrupt advisers & most heinous practices.
Their main talking point was that there were a couple of options other than EIAs that have performed better over the last couple of years. I don't dispute that. Unfortunately, MONEY apparently didn't know what those options were in 2007 because in Ben Stein's "Perfect Portfolio" article he recommended 90% of your money be exposed to the market, 5% in real estate & 5% in energy. He then goes on to recommend "20% of your portfolio in cash", (which adds up to 120% by the way).
So let's compare Ben's Perfect Portfolio with an equity indexed annuity between 2007 and 2011. (I have to confess that it gives me great pleasure to write this next sentence.) With $100,000 in Ben's portfolio you would still be down 30%, meaning you would need to gain 42.85% this year just to be even with where you were in 2007. Impossible. What if I had planned to retire this year, Ben?
In contrast, how would the EIA have performed? With just the average mediocre EIA, you would now have no less than $115,829 assuming a 6% bonus & minimum guaranteed rate of 3%. In addition, had you planned to retire this year, your Income Account Value would be $145,911 which would provide you with lifetime guaranteed income of $8025.yr. (Try that with a CD) At that rate of withdrawal, Ben's portfolio would run out in 8.7 years unless it enjoyed pretty hefty future returns. Which is unlikely. The key point here is that EIAs are for your safe money. They are never intended to compete with aggressive growth portfolios, even though they coincidentally competed quite well over the last ten years.,
It's easy to look back in time and rag on someone else's advice. But it's hypocritical to do so without applying the same magnifying glass to your own recommendations. The vast majority of Registered Investment Advisers want the absolute best options they can find for their clients. Too bad Wall Street can't make the same claim.
Monday, January 17, 2011
Favorite MLK Jr. Quote
"Even if I knew that tomorrow the world would go to pieces, I would still plant my apple tree."
There's no way to tell what Dr. King meant by that statement. But I know it was more than Pollyannaish foolish optimism. He's not saying he believes or has faith that the world will not go to pieces and will therefore plant a tree. He's saying "even if I knew" things were falling apart he would still take the long view, get down in the dirt, and do something organic and basic.
If Armageddon were indeed upon us would you run around screaming, pulling your hair out? Or simply continue trying to relieve suffering in the world by becoming more awake in that moment?
There's no way to tell what Dr. King meant by that statement. But I know it was more than Pollyannaish foolish optimism. He's not saying he believes or has faith that the world will not go to pieces and will therefore plant a tree. He's saying "even if I knew" things were falling apart he would still take the long view, get down in the dirt, and do something organic and basic.
If Armageddon were indeed upon us would you run around screaming, pulling your hair out? Or simply continue trying to relieve suffering in the world by becoming more awake in that moment?
Sunday, January 2, 2011
Studded Snow Tires are the safest
I've been harping on this myth ever since studless snow tires emerged on the market. Here are the reasons I believe studless tires are safer than studded tires, and are more economical as well:
- The feeling of safety from studded tires is more psychological than anything else, probably due to the aggressive sound of the studs destroying pavement. At Tire Information World studies are cited that studded tires have an advantage only in a narrow range of circumstances, which most drivers would rarely ever encounter. Studless tire are equal to or better in most normal winter conditions.
- Studed tires grind troughs in the road which are extremely hazardous, wet or dry. Perhaps, as a result, they create more hazard than they prevent. I could find no studies about the cost history of this hazard.
- Consequently, tons of asphalt dust are spewed into the air, into our lungs and onto our agricultural crops. It costs billions for states and municipalities to replace this material. Who know the dollar value of the health effects.
- Tire Info. World states that studless tires cost 50% more but that has not been my experience locally. They are actually cheaper. Regardless, studded tires should be taxed sufficiently to repair all the damage they cause, in which case they would cost even more. It is unfair for the rest of us to subsidize this damage.
- Studless tires accelerate & stop better than studded tires.
- Studless tires have better traction on wet and dry pavement when temperatures are above freezing. This is important because it is very common for people to keep their studs on clear through April, even though temperatures are above freezing most of the time.
- As the studs wear down, the effectiveness of studded tires (already inferior or just equal to studless tires) diminishes.
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