Five Totally Worthless Financial Products

This excellent article by John Persinos in "Investing Answers" deserves repeating. I could easily expand it to twenty-five. But here is my summary of the article:
#5. Extended warranties for consumer electronics- Odds are that after the manufacturer's warranty expires you can find a superior replacement for less than you paid for the original.
#4. Payment protection insurance- This is an emotional purchase. Read the contract and do the math and it just doesn't add up.
#3. "Special" credit cards- just look for the lowest interest rates & fees. If you can get those paired with bonuses like extra airline miles, great. Just be sure there are no extra costs as long as you pay off your card balance during the grace period.
#2. Debt management plans- look for free or low-cost services like: Budget Calculator
#1. Any credit report that is not free- You can get a free report from any one of the credit bureaus annually. But why? Who cares? Plus, my understanding is that every request for a report actually lowers your score.

MYTH: We're not helping our veterans. Hurry to enroll in this FREE program.

Well, I think it is true that in many ways, as a country, our treatment of veterans is woefully inadequate. But not in Clackamas county. See details below for this FREE series of classes on business management. This is not only for established businesses but also for vet's who would like to start a business.

The Clackamas Community College Small Business Development Center (SBDC) was recently awarded a grant from the U.S. Small Business Administration (SBA) to develop and deliver a special version of our highly successful and long running Small Business Management Program (SBM). This new Veterans SBM, has been designed especially for returning but recently deployed service members who are either business owners or key employees and whose business has been impacted by their deployment. We are also enrolling veteran business owners with earlier service on a space available basis.

This program will allow each entrepreneur to work “on” and well as “in” his or her business in order to achieve business, family and personal goals. The program is designed and proven to improve small business owners’ management and leadership skills resulting in greater success and profitability.

The program will be taught by Dr. Thomas Jones, recognized as one of the 15 most innovative business educators in the United States and a Vietnam vet himself. (US Army 1967-69 1st Air Cav, MOS 11B-40 Republic of Vietnam).

This class will be 100% fees paid. Class will begin September 16 and be completed by Dec 31, 2010.

If you could help us get this information to our Oregon Vets you would be doing them a great service and helping us get the word out.

Thanks for your assistance and if you, or any of your associates, have any questions please call us.

Clackamas Community College
Small Business Development Center
(Phone) 503-594-0738, (Fax) 503-594-0726
Email: kathykb@clackamas.edu

No Myth: Need Another Crisis? By the numbers.

1. There are approximately 79 million Baby Boomers in the U.S. (those of us born between 1946 & 1964, roughly).
2. About 5 million have some form of Long Term Care insurance, or just over 6%.
3. About 15.8 million- 20% -will need Long Term Care insurance once they pass age 65.
4. Average cost in Oregon for a semi-private room: $78,475 or $6539/mo. (see Compare Costs)
5. Average annual premium for a 60 yr. old married couple to insure that $6539/month Long Term Care cost: $4672.00 ($3971 if in excellent health)
6. Lifetime additional cost of waiting just 5 years to buy Long Term Care insurance: $41,244.00 The premium cost doubles about every eight years, assuming you even qualify at that time.
7. Number of days on claim at age 80 to recover premiums paid: 120
8. Number of days the Long Term Care insurance will cover your nursing home stay: 1825

The Myth of the "Conservative" politician

They abhor "wealth redistribution". Unless it is from you to them, which has been the case since the Reagan borrow-and-spend years, accelerated by Clinton and blasted into outer space by GW Bush & his Congressional toadies.

They advocate fiscal restraint in government. Unless it takes benefits away from their owners, I mean, campaign contributors.

They hate taxes. Unless someone else pays them.

They decry government regulations. Unless such regulations give them unmerited dominance in the marketplace or squash their competitors.

They advocate a free market. Unless the market is sending their corporate leash-holders the message that their product or service is no longer needed.

They are the models & purveyors of morality. Unless doing the right thing would harm their re-election prospects.

They want freedom for all. Unless you're the wrong color, sex, sexual orientation, religion, economic strata, nationality, or any of dozens of irrelevant characteristics.

What's a "Fiduciary"?

Even though I disagree with most of Forbes' editorials, Neil Weinberg had a mostly excellent article in the August 9th issue. He begins,
"Everybody hates Wall Street and it's easy to see why. While one in six workers can't find a job, investment banks are hiring thousands. Goldman Sachs Chief Lloyd Blankfein recently bought an apartment on New York City's Central Park West for $26 million-in cash. How are you doing with your mortgage payments?"
He goes on to say that, after the industry wide $700 billion taxpayer bailout, New York City's financial sector awarded itself $20 billion in bonuses, an average of $124,000 for each banker, analyst & secretary. BONUSES, not wages. Bonuses. He adds, "Say, how is your 401(k) holding up?"
But here is where I really agree with Mr. Weinberg: he says it's our own fault for not standing up and insisting on real reform, for not holding our Congressional representatives accountable to us.
For example, initial versions of the recently passed financial reform bill required "fiduciary" standards for all financial advisers, including stockbrokers. "Fiduciary" means the adviser must put the client's interests above his own. That provision didn't survive, after heavy lobbying from the industry. Brokers can continue offering expensive crap that makes them the most money as long as we're dumb enough to keep buying it.
This, too, Weinberg places squarely in our own laps: Why would we continue dealing with people we know don't have our best interests at heart? Why not deal only with true fiduciaries, such as RIAs (registered investment advisers, like me)?

Myth: Capitalism is a Perfect System

As incredible as it may seem, there are prominent political, intellectual, and business leaders who believe that unfettered capitalism, a "free" market, can do no harm. For example Alan Greenspan, the principal architect of our recession, believed financial regulation stifles innovation. Thus his support of GW's deregulatory spree.
But as Stanford economist Joe Stiglitz points out in his latest book, "FreeFall", the only innovations the banksters and Wall Street came up with were how to avoid accounting and tax regulations. Had they really had any interest in innovation they would have figured out how to eliminate the risks of home ownership rather than compounding them.
Our capitalist system is imperfect and fails frequently and spectacularly. This happens, as Stiglitz points out,when private rewards become disconnected from public benefit. There will probably always be the type of "business" person who chortles at raking in profits while providing absolutely nothing of material value in return. This is known as sociopathy. It is a mental illness. This is why we need a strong, equitably enforced regulatory structure to keep such people from entering the market and to take them out if they somehow manage to get in. I dream of the day when everyone has to follow the rules, from the President on down to your local plumber.  Not that plumbers are at the bottom of any strata, it just sounded good.  Ok, how about down to the local kid mowing your lawn.

What if . . . .? This CD-killer is no myth.

Having never quite grown up, doomed, I suppose, to being a perpetual dreamer, I'm a great one for "what ifs". This is one of my favorites, what I call "The CD Killer".

In terms of safe money, what if:
1. You could earn double the rate your current CD is paying.
2. Defer taxes on the interest indefinitely.
3. Have penalty-free access to your funds
4. Triple your money if you ever needed long term care. Yes you're reading that right, triple.
5. Do all this regardless of your current health.
6. Protect your principal and earnings from creditors as well as from FAFSA reporting.

If that sounds the least bit intriguing to you, please contact me for more details.

Christian Financial Planning

OK. I know. I'm playing with fire. But this blog is intended to be controversial and challenging. And what could be more controversial and challenging than scrutinizing religion and money?
I especially love "Christian financial planning", because Christ was quite clear on His financial plan: sell everything and give it to the poor. (But then do the newly enriched poor have to do the same? That's true trickle down!) And then there's Jesus' analogy of a camel trying to go through the eye of a needle having better odds than a rich man attempting to enter Heaven. Not being a Biblical literalist- since I can't read Hebrew, Aramaic or Greek -from everything else I've read about him, I think Jesus was referring to attachment to or obsession with or love of money (or any other ego attachments for that matter) not just the mere possession of it. With no attachment to material wealth, one would indeed gain more happiness relieving suffering by giving than from clinging to wealth. Hence the camel metaphor. Some suspect a mistranslation, that instead of "camel" (kamilos) the word was "rope" (kamelos). The metaphor still gets the idea across as neither object is easy to push through the eye of a needle. So why would a Christian financial planner encourage clients' attachment to wealth and thus prevent their entry into Heaven?
Well, here's where the split in rationalization occurs. "Christian" is meant to imply "hey, you can trust me!". But then, every Christian Financial Planning website I've reviewed reverts to mostly Old Testament "Biblical financial principles", (which I won't get into). That way they don't have to deal with Christ's rather simple wealth resdistribution plan for which their services would be unnecessary. Does that seem contradictory to anyone else?

Myth: Banks are the safest place for your money

I hate to even go here because it sounds so crazy. 81 banks have failed so far this year (see Failed Banks). To put that number in perspective, it's almost 1/3 of bank failures since 2000 according to investinganswers.com. But here's the crazy part: Although the FDIC will tell us how many banks are on their watch list (775, last time I checked) they won't tell us the names of those banks, for fear of creating a self-fulfilling prophecy by freaking out depositors who will then take all their money out. The FDIC apparently would rather freak us out even more by secretly seizing our bank. Which we first find out about in the morning paper and all we can do then is spew coffee all over it.
What can we do now, though? Of indicators for bank weakness, the best is the "net charge-off rate", which is the percent of a bank's loans that the bank has given up on collecting. I can't take credit for any of this. See the excellent article at Bank.
How do you figure that out? Enter [drum roll] The Texas Ratio! According to Andy Obermueller's excellent article at the above link:
"The Texas ratio is determined by dividing the bank's non-performing assets by its tangible common equity and loan-loss reserves. Tangible common is equity capital less goodwill and intangibles. As the ratio approaches 1.0, the bank's risk of failure rises. Every bank that has failed in the second quarter has had a Texas ratio of greater than 0.90. In fact the average was about 5.0."

So here's what you've really been waiting to find out; the list of Oregon and Washington banks with risky "Texas" ratios (what's up with Washington banks??):

Oregon Banks
1.91 Albina Community Bank Portland
1.62 MBank Gresham
1.23 Bank of the Cascades Bend
1.16 LibertyBank Eugene
1.02 Home Valley Bank Cave Junction
0.97 Pacific West Bank West Linn

Washington Banks
3.13 Washington First International Bank Seattle
2.58 HomeStreet Bank Seattle
2.58 Seattle Bank Seattle
2.47 North County Bank Arlington
2.33 First Sound Bank Seattle
2.13 Shoreline Bank Shoreline
1.98 Regal Financial Bank Seattle
1.78 AmericanWest Bank Spokane
1.72 The Cowlitz Bank Longview
1.56 Viking Bank Seattle
1.46 Sterling Savings Bank Spokane
1.33 The Bank of Washington Lynnwood
1.20 First Heritage Bank Snohomish
1.16 Mountain Pacific Bank Everett
1.12 Business Bank Burlington
1.07 Bank of Whitman Colfax
1.04 Prime Pacific Bank, National Assn Lynnwood
0.99 Eastside Commercial Bank Bellevue
0.90 Cascade Bank Everett

What are "Socially Responsible" and "Sustainable" Investing?

One of the best online discussions of this issue that I've found is at:
michaelbluejay.com
But the most common catch-phrase (which Parnassus Investments has branded) is "Doing well by doing good". For long-term investors, SRI & sustainable investing should pay off better than short-term attempts to game all the systems in which business is done, whether legal, regulatory, environmental, social, ethical or other systems, because eventually such gaming will catch up to the perpetrators. Need I say "BP"?
Having said that, you may be willing to sacrifice higher investment returns and/or incur higher management expenses to be sure your most important principles are honored. For example, CrueltyFree purports to be a website directory of companies that don't harm animals to develop, test & manufacture their goods. This makes sense to me because people who in their minds can turn animals into objects probably do the same with their customers.
Still, how do you tell what's SRI and what isn't? Last time I checked, over 90% of Fortune 500 companies were included in so-called Socially Responsible Mutual fund portfolios. I'm sympathetic; the sheer cost of deeply screening companies for portfolio selection- if "perfect" -would price any SRI fund manager out of the market.
Thankfully, the Internet has become the great equalizer. Virtually anyone can drill down into the inner workings of just about any corporation.
But what criteria do you use? I like William McDonough's three simple principles that by now we should have learned from nature (he's author of "Cradle to Cradle"):
1. Waste Equals Food. All materials used by living beings in nature are constantly returned to the earth and used as food [raw materials] for other living systems.
2. Rely on Solar Income. Nature does not mine from the past. Current solar energy powers the whole system. By mining from the past (coal, oil, gas) and stealing from the future (ocean dumping, depleting fisheries, heating the atmosphere) we are proving to ourselves that our lifestyles will be scaled back, sooner than later, whether we choose that or it is forced upon us.
3. Respect Diversity. An intricate web of relationships among millions of diverse organisms provides stability to ecosystems so that they do not collapse when calamities occur.
These may seem like kumbaya, warm & fuzzy ideals to some folks. But what they really are are admonitions, sober warnings about how the real world works. Anyone, any society, any corporation trying to get around these rules will ultimately fail miserably.
So, in terms of where to invest, I think the rare company that is diligently trying to follow these three principles will do very well in the long term. Hey, what do you know. My company does.

What is BAD about annuities?

The Oregon Insurance Division has several excellent publications, including this one on annuities: http://www.cbs.state.or.us/ins/publications/consumer/3494.pdf
Here is one page of it, to save you the trouble. See my remarks interspersed:

Annuity sales to senior citizens have
increased significantly in recent years.
However, as annuity sales have risen, so has a
sense of confusion among consumers. This is
due, in part, to questionable or deceptive sales
practices by insurance companies and agents
looking to take advantage of consumers.
When considering buying an annuity, it’s
important to take precautions and arm
yourself with information so you can make
the best decision.
What is an annuity?
An annuity is a contract in which an insurance
company pays you income at regular intervals
in return for premium payments.
Well, that's a rather old definition of annuity, the literal meaning of "annuity". But the income can be deferred as long as you wish with the better products.
Annuities are most often bought for retirement and can pay a
guaranteed income as long as you live.
What are the different kinds of annuities?
There are several types of annuities, which carry
varying levels of risk and guarantees. To get the
most out of an annuity, it is important to know
the options available and the benefits each
type provides.
• Single Premium Annuity: An annuity in
which you pay the insurance company only
one premium payment.
• Multiple Premium Annuity: An annuity in
which you pay the insurance company
multiple premium payments.
• Immediate Annuity: An annuity in which
you begin to receive income payments no later
than one year after you pay the premium.
• Deferred Annuity: An annuity in which
you begin to receive income payments
many years later. Or not at all, at your option.
• Fixed Annuity: An annuity in which your
money, less any applicable charges, earns
interest at rates determined by the insurance
company or in a way specified in the
annuity contract.
• Variable Annuity: An annuity in which the
insurance company invests your money, less
any applicable charges, into a separate
account based upon the risk you want to take.
The money can be invested in stocks, bonds,
or other investments. If the fund does not
do well, you may lose some or all of
your investment.
• Equity-Indexed Annuity: A variation of
a fixed annuity in which the interest rate
is based on an outside index, such as a
stock market index. The annuity pays a
base return, but it may be higher if the
index increases.
Is an annuity right for you?
To find out if an annuity is right for you, think
about your financial goals. Analyze how much
money you are willing to invest and how much
risk you are willing to take.
Oregon law prohibits sellers from recommending
the sale or replacement of annuities unless
they make a reasonable inquiry about your
insurance objectives, financial situation and
needs, age, and other relevant information.
Be aware that annuities are not liquid and may
tie up your money for several years. This is misleading.
virtually all annuity contracts give you 10% liquidity,
or more, after 12 months. If you feel there is any
possible need for 100% liquidity within 10 years, then
that money does not belong in an annuity. If you get
out of an annuity in the first few years, the surrender
charges and penalties may cause you to
lose a significant portion of your investment.
Also, the commission a salesperson receives
may be taken directly out of your principal,
causing a net loss for the first few years of
your investment. This isn't really true anymore.
You shouldn't buy an annuity that deducts commissions
from your principal.
Contact your tax professional to determine
any negative consequences of buying or
switching to an annuity from another type
of investment; or if the annuity interferes
with your eligibility for medical care or
housing assistance. This is good advice,
but in many cases an annuity can actually help
with eligibility.
C

Myth: Glenn Beck

Yes, Glenn Beck, the one you see and hear on TV is himself a myth, an apparition, a fabrication. As he so aptly put it in a recent issue of FORBES, Beck doesn't "give a flying crap about the political process [hence, our country] . . . we are an entertainment company". Got that? Entertainment. Not news. Not facts. Not a legitimate vision of past, present or future. Entertainment. So if you rely for reasoned analysis on the "crying man-baby", as he is referred to in France, beware. Beck's show is to news as Saturday night wrestling is to Olympic sports.

Myth: Ayn Rand was a brilliant capitalist & counters "Obama's Socialism"

Any time Glenn Beck promotes a book, I get very curious, especially when written by vastly overrated, disturbed people like Ayn Rand. I read two of her books, "The Fountainhead" and "Atlas Shrugged" while working toward my bachelors degree in philosophy. At the time I likened these ponderous works to pounding a raw egg with a sledgehammer 100 times with the goal of creating a beautiful Easter egg; Rand's weak and obtuse "objectivism" was the forgone conclusion around which her copious and gooey prose was sloppily draped.
The best analysis of Rand and her works recently appeared in the 11/09 New Yorker as "Possessed" by Thomas Mallon. He opines of "The Fountainhead" "It is, in fact, badly executed on every level of language, plot, and characterization". I concur. And the best distillation ever of Rand's character pops up in the same article on page 65: "The philosopher's most famous directive was 'Check your premises', but those in her orbit never dared question hers". Otherwise bottomless insecurity would fulminate. And I would venture that she never checked her own presumptions either.
In my experience as a perpetual student and avid reader, the best authors and teachers are also copious readers and insatiable students themselves. As Mallon points out, Rand appeared to be profoundly ignorant of the actual writings of the authors she touted, from O. Henry to Mickey Spillane. So rather than her scholarship being the primary bait for her fan base, perhaps her "arrestingly abrasive" persona and atheism were the attraction. Who knows. Who cares?
But here's the interesting and significant fact- that I did not know -Mr. Mallon reveals: Among Rand's groupies, otherwise known as "The Collective" was Alan Greenspan. Wonderful! So we had a guy running (ruining?) the Federal Reserve who believed government is an evil impediment to the always virtuous entrepreneurial pursuits of the infallibly noble businessman. That explains a lot, how the foxes came to be guarding the chicken coop. How could anyone think that we need armies, police, fire fighters and even sports referees but not also need financial regulators to control the darker sides of human nature, especially when it comes to power and money? Yes, even business people like me are subject to human weaknesses such as greed & shortsightedness. Self regulation- especially by Wall Street -has always failed.
I'll take Obama's "socialism" (which it really is not) over a free-for-all market any day. No one who has looked up the definition of "socialism" could disagree. We all enjoy our socialist roads, socialist military, socialist police protection, socialist court system, socialist Internet (created by the government, made possible principally by funding Al Gore secured for it), airwaves, etc. I just want the most efficient and effective systems in place. Sometimes the private sector does better. Other times mass cooperative efforts (aka, government) perform better. Labels such as "socialist" or "free-market" are merely being used in place of real thinking.

Myth: The "Patient Protection and Affordable Care Act" is a terrible law

This bill stinks because the Democrats could have easily included some important essentials, including:
(1)A National insurance exchange, including a public option
(2)Repeal of the anti-trust exemption for health insurers
(3)Allowing Medicare to bargain for lower drug prices.
Ideally, a national, single-payer system (Medicare for all) would have saved us the most money and left no one uninsured. This bill allows the poor to opt out of buying insurance if they can't afford it. Huh?
But here are some of the good, and weird, parts:
Good: Insurers can't rescind (retroactively cancel) your coverage unless you committed fraud or intentionally misrepresented material facts. So if you forgot to mention that visit to the dermatologist they can't then cancel coverage after you have a mastectomy (actual case). The acne was immaterial, and, you didn't intend to conceal it.
Good: Will require health plans to report on benefits or reimbursement structures that improve health outcomes, prevent hospital readmission, improve patient safety & promote wellness. Do ya think?
Good: Maximum waiting period for pre-existing conditions will be 90 days.
Good: Requires a whole host of experimental "demonstration projects" to test various cost and care strategies. This is an admission that they can't possibly know all the best solutions up front, unlike Rush Limbaugh.
Good: Creates an ongoing "Interagency Working Group on Health Care Quality" which will have a results oriented focus on best practices.
Good: Makes Medicare reimbursement rates more equitable among the states, which will benefit Oregon and- I hope -stop the mass exodus of doctors from Medicare patients.
Good Expands student loan forgiveness to include health professionals who go to work for public health agencies.
Weird: Increases from 10% to 20% the penalty for using HSA funds for nonmedical purposes. Was that a problem?
Bad: Raises the AGI threshold from 7.5% to 10% for deductiblity of medical expenses, with few exceptions.
Weird but Good: 10% tax on indoor tanning. Yes, tanning salons should pay for the skin cancer they cause.
Weak and Weird: The requirement that everyone buy insurance. Except sometimes. This may change soon, but right now an individual making less than $150,000/yr. will be penalized $750/yr. for not buying health insurance. Over that income level, add 0.5% of the excess income to your penalty. Let's see. Should I spend $500/mo. for health insurance or pay a $750 penalty, and then when I do get sick, enroll in a plan because they can't refuse me? Might work. But what if you have an accident? Or heart attack? Or some other event that renders you unconscious or otherwise incapacitated, or, needs immediate attention? You will not be covered until you enroll in a plan. And then there's that pesky 90 day waiting period. I know that coverage will not be retroactive.

MYTH: People want Jobs

All the politicians are talking about "jobs creation" (has a nicer ring to it than the singular "job creation" apparently). But nobody really wants a "job". They want satisfaction, a sense of fulfillment & confidence in the future. They want the pursuit of happiness. But not in the perverted, egomaniacal sense used colloquially. When they put that phrase in the Declaration of Independence, Jefferson & Franklin weren't referring to the vapid notion of "enlightened self-interest" that the free-for-all market wonks like to mindlessly babble about. Jefferson & Franklin intended that the greatest expression of human virtue- and therefore the greatest source of enduring satisfaction -was the pursuit of happiness not only for ones self but also for one's community at large. They felt that this was an inalienable right for which government should be structured to support and protect. Great contributions to happiness in general should be greatly rewarded.
And therein lies the myth of "jobs creation" being a source of happiness. Shouldn't workers also share in the rewards of their productivity?
Between 1990 and 2006, worker productivity increased 135%. But during the same time period, average wages were up only about 10%. Workers have been disconnected from the fruits of their labors! Where did it all go? The rewards were siphoned to the top and/or out of the country. See Follow the Money. 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 %.
Our government has failed- by the design of the multinational corporations that run it -to create a level playing field, a place where everyone has the freedom to pursue happiness for themselves and their communities, a place where creation of value- rather than decimation of it -is fairly rewarded.

BOOMERS; you're more realistic than your parents think.

A study by financial behemoth, Allianz Life, revealed something that surprised me. One of the survey questions asked: Please indicate how important it is for you personally that you receive [if you're a boomer]/provide [if you're an elder parent] any of the following as an inheritance.
Surprisingly, "stuff" wasn't at the top of the list. 77% of Boomers and their parents felt that "Values and life lessons" were the most important inheritance. Only 10% of Boomers felt that "financial assets or real estate" were most important while 39% of elders did. Let's rephrase that to be sure it's clear: Elders were four times more likely than their children to believe that money and property were the most important inheritance. Elders vastly overestimate their childrens' expectations of inheriting financial assets and/or real estate.
This is borne out by my experience that many parents even endanger their own financial welfare by attempting to leave too much to the kids. What a shame, if it's not even that important to the kids.

Myth- Fee-only advisers are always better. Part II

A client recently told me that his CPA was "suspicious" of investment advisers who also sell insurance and investments (in other words, me). I could understand that suspicion (that is, superstition) if the "product" were shampoo or pharmaceuticals, for example. But as my first post on this subject proved, the manner in which an adviser is compensated bears absolutely no relationship to the adviser's honesty, competence, or empathy, the three cornerstones of trust. Regardless of how a person is compensated by you, he can still be a crook, a dummy, or a sociopath. Without all three of those cornerstones (honesty, competence, & empathy), an adviser is not deserving of your trust, no matter how she is paid. And regardless of how one is paid, there will always be biases and conflicts of interest. Is it fair for your stockbroker to earn $15,000/yr. on your million bucks (the average) while its value is declining? Is it fair for a fee-"only" adviser to recommend that you use that stockbroker because they have a cross-referral agreement?
Let's look at CPAs and tax preparers for example. Their bias- a substantial one -is to deliver the smallest legal tax bill for the current tax year. That's how they earn your love, one year at a time. But as a result, millions of Americans have created tax time-bombs which will blindside them at the most vulnerable time of their lives: retirement. You hear about wealthy retirees who pay little to no income tax. Wouldn't you prefer that? Naturally. But it takes a long term view, careful planning, and the acquisition of properly structured financial products.  And potentially higher tax bills in the early years of a financial plan.

• So back to the Three Cornerstones of Trust. Let's use an example to see how these characteristics might play out in real life.  Let's say you want advice on asset allocation in your TSA. Your nephew recently got securities licensed. He's thoroughly honest and empathetic. But is he competent? Probably not. 
• So you turn to the adviser you know from church. He's been in the business 25 years and honest to a fault. But he's an egomaniac focused solely on raking in as much cash as possible; entirely legal and ethical under Wall Street rules. But just not very empathetic. Trust him? 
• Finally, you tune in to the latest TV financial guru who is a genius and exhibits such deep caring about you. But looking back, if you had followed his advice two years ago you would have lost 40% of your money. Does he ever mention that on his show? No. Is that honest?  Or competent?

But this really is a moot point about the differences between commission, fee-based, and fee-only advisers. Registered Investment Advisers (RIAs), are held to a fiduciary standard no matter how we are compensated. That means we are legally obligated to diagnose your situation and then find the best solutions for you that we can. The key word there is solutions. The reason I also offer concrete solutions- products & investments -is that it's not enough to just arm someone with a list of great ideas. In that case, usually nothing gets done. The most brilliant solutions in the universe are useless if not implemented! I'm not quite the smartest guy in the room. That's why I always recommend that my clients get input on my recommendations from their CPAs, attorneys, even other advisers.  But I am biased towards action.
I am also biased toward minimizing taxes and fees over my clients' lifetimes.  If they choose to buy a commission-paying product through me then I give a corresponding refund of my fee.  It is a fact that sometimes the very best planning option involves a commission-paying product.  Would it be more ethical of me to charge my planning fee and then refer the client to a broker to buy that product?  Of course not. That would be more expensive for my client.  Most choose to get the planning for free and let the product vendor pay me.  Because ultimately, I may be sitting on the witness stand explaining to a jury why I chose that particular product.  I never want to have to say, "Because it paid me the highest commission."

Supreme Court Myth: Now my chickens can vote

I have already given you the history of how paper fictions- corporations -came to acquire human rights intended only for living, breathing human beings (see the 11/9/09 post). Now, in a radical departure from 100 years of legal precedent, the Supreme Court has given corporations and unions virtually unlimited power to interfere in elections. So now my chickens, or your car, or a forest, or even a bag of hammers can in effect "vote". All you have to do is place them in a corporate shell, dump in some cash, and go buy an election.

Myth: It's Always Best to Consolidate Your IRA Accounts to Lower Fees

Normally, that is true. Most- and I use that word accurately -investors create the illusion of asset diversification by having multiple fund companies or even multiple IRA custodians. But there is so much overlap that the whole shebang is at risk anyway: twenty virtually identical large cap funds held by 5 different fund families still leave you flapping in the breeze of Wall Street hot air. And those unnecessary duplicated fees add up, especially in down or flat markets. So, yes, usually it's a good idea to consolidate as much as possible to reduce or even eliminate fees.
Except in years 2010+. If you earn over $100,000. And are doing a Roth conversion. That's because of a little known provision called "re-characterization". Here's why. Suppose your Traditional IRA is currently worth $100,000 and you decide to convert the whole thing to a Roth in 2010. The entire amount is taxable as ordinary income, but, you get to spread that out over two years. Your tax bill is, let's say, $19,000 each year.
This winter, the market crashes. Again. Your new Roth is only worth $60,000 now. So your effective tax rate is 38/60 or 63%! Oops. Conversion was a bad idea. Well, you can "re-characterize" back to a Traditional IRA at $60,000 & then re-convert to a Roth, thereby reducing your tax hit to $11,400 per year, a savings of $15,200. Cool.
But what if some of your funds did really well? Doesn't matter. You have to re-characterize the whole account.
Therefore, it would make sense to convert to several Roth accounts, each in a different asset class according to the Asset Allocation model you and your adviser designed. Then you get to keep the gainers and re-characterize only the losers.
Sounds more complicated that it is. Easy to do, pays big dividends.

New Company Name- this is not a myth

I got a nasty and obtuse letter from a California attorney threatening all kinds of things if I didn't stop using the name "Silver Sage Advisers". My doing so would apparently cause great harm to his client, who doesn't even do business in Oregon under that name. Not really caring one way or the other, and not wanting to harm anybody, I'm bypassing this battle and have re-registered my investment adviser company (RIA) under the name "Duell Wealth Preservation", which more accurately reflects my main mission anyway.

In a weirdly literal interpretation of Oregon Statutes, the Department of Finance & Corporate Securities (which regulates RIAs) says I must charge fees for my services or I can't be a Registered Investment Adviser. My advisory contract and fee schedule are posted on my website under "Links". Fees are split into three different areas: (1)Assets under management, (2)Flat fee for a comprehensive financial plan, and (3)Hourly fees for specific tasks. With any particular client I charge only one type of fee; there will be no Dagwood sandwiching of fees. I'm not sure how this protects consumers but I'm Mr. Compliance when it comes to the regulatory agencies.

Avoid the most dangerous "predator" of your retirement funds

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20 years ago I and my industry hounded everyone to defer as much income as possible to retirement because one’s income would be less and tax rates lower. Then 10-12 years ago I advised “tax diversification”, half your retirement money should be taxable, half tax-free. That way if your savings plans were successful, and you retired into a higher bracket, you could take the tax-free income first. If your bracket was lower, you could take the taxable income first and let the tax-free portion keep building.

But now several factors have created a perfect storm of big tax increases in the near and long term:

· Current tax rates are the lowest since the 1920’s
· As a % of GDP, the Federal deficit is the highest since WWII
· The boomers will skyrocket demand for Federal entitlements

So regardless of whether your income is lower in retirement we will all most likely pay higher tax rates.  What should you do? Here are my recommendations:

1. If you have a matched retirement plan at work, keep contributing enough to get every matching dollar. That’s free money.

2. If you can still afford to save more, ask your employer about a Roth 401(k).  Employers have been able to do this with 401(k) & 403(b) plans since 1996.

3. If they won’t accommodate you, set up Roth IRAs if your income level qualifies.

4. Convert Traditional IRAs & accessible retirement accounts to a Roth IRA. If your single or joint income exceeds $100,000 you can do this starting in 2010.  This is a perfect time to take the tax hit: low account values and low tax rates.

5. Want to bypass most of the conversion restrictions?  You can do a strategic rollout into other financial vehicles that will be tax-free to you and your kids. Some even have long term care benefits & minimum guaranteed returns built in.  Effective January 1, some previously taxable withdrawals can now be tax free.  And, you can avoid the pre-age-59 1/2 excise tax through reg. 72(t) distributions.

Of course, it is always dangerous to take any action without expert analysis and advice. It’s possible none of this would work for you and could actually be harmful.  Please don't do it yourself.  The first step?  Take my Wealth Index Questionnaire while it is still free.  It takes 15-20 minutes online.  Then when your results are in, we'll spend an hour reviewing them in a face-to-face meeting.

Best Regards always,

Gary

Myth: Our Health Care System is what Americans want

Thom Hartmann posted this Walter Conkite quote:
"America's health care system is neither healthy, caring, nor a system."
How did it get this way? Well if you're looking for places to lay blame, go no further than the railroad companies, J.C. Bancroft Davis, and a careless (or corrupt) Supreme Court in the 1886 U.S. Supreme Court case Santa Clara County v. Southern Pacific Railroad Company (118 U.S. 394) which dealt with the railroad's refusal to pay taxes in California. But, although the court's decision had nothing to do with granting corporations the same Constitutional rights as living breathing human beings, Mr. Davis- the court reporter in this case -titled the decision as awarding personhood to corporations. (He was a former Southern Pacific employee.) Subsequent cases relied on this phony precedent.
So now we have paper fictions (corporations) with free speech rights they were never intended to have, which allow them to buy the airwaves, the newspapers, the magazines, our members of Congress and , yes, even the Presidency. That is why even though the vast majority of Americans want Universal Health Care for all, our representatives keep refusing to implement it.

Myth: The Government Will Take Care of Me

As we live longer and longer, the uncertain and usually untold story about quality of life needs to be looked at. The number one cause of debilitating but not immediately fatal conditions such as arthritis, dementia, heart & respiratory decline is longevity. How is this affecting us as families, communities and a society? How will it affect us?
I've met with more couples than I care to admit who are "in betweeners", that is, they are cornered into taking care of adult children and at the same time saddled with caring for one or both sets of their parents. The stress is palpable, incredibly emotionally and financially draining.
Right now, Medicare does not pay for long term care. State Medicaid programs do but only if you are virtually impoverished. I won't go into the details here, but the legal consequences of shifting assets to qualify for Medicaid keep getting more punitive as the financial solvency of the program becomes more and more scary. What are the options?
Well, you can:

• Be really rich or have really rich kids. Seriously. This is an option that works for a few people.
• Spend down your assets to qualify for Medicaid.
• Set up an Income Cap Trust- see http://www.dhs.state.or.us/spd/tools/program/osip/wg5.htm
• Buy Long Term Care insurance
• Hope and pray that the health care reform bills in Congress will deal with this issue (not likely).
• Only get malignantly terminal illnesses

Let's examine these primary alternatives.

The first one is the best but, based on statistics, the least probable. Even so, the reality is that even well-off folks buy Long Term Care insurance because they've done the math: If you could save the monthly premium for long term care insurance in an account earning 6% for 20 years- instead of buying the insurance -then you would have enough money to pay for about 9 months of care. The insurance, on the other hand, would give you inflation adjusted care for 5 years.
The second possibility is commonly used, but usually involuntarily. Plus, it leaves your spouse in a world of financial hurt, if you care about that.
The Income Cap Trust should be drafted by an attorney. It can allow you to qualify for Medicaid earlier, and stay on longer, by meeting the "300% of SSI standard income limit" test.
Buying Long Term Care insurance LTCi) is actually the cheapest option for all of us, if you can qualify. This is especially true in Oregon which is a "partnership" state, meaning that to the extent you have private long term care insurance you will be exempted from Medicaid recovery from your estate. For example, let's say you have LTCi, go on claim, and your insurer pays out a total of $300,000 before you die. Your Medicaid exempt assets will be increased by $300,000.
The fourth option, hoping Congress will fix it, doesn't look too promising. We can't afford the programs they've already promised us.
The last option is out of our control. And, I wouldn't wish that on anyone.

Don't listen to the hype about the Baucus Bill

S. 1796, the 1,502-page America's Healthy Future Act bill (aka the Baucus Bill) has been excreted from the Senate Finance Committee. And the hysteria about its length has already begun. Oh my, the table of contents alone is over 12 pages!
What you will not hear, however, is that all such bills are issued in "markup" format. They are double and triple spaced. They only use up the middle third of the page. This leaves room for Senators, staff & lobbyists to mark up the bill to render it totally contrary to its purpose, I mean, to be sure all interests are taken into account.
If you cut and paste the bill into Word, take out most of the spacing, and use 2/3 of the page instead of 1/3, the bill shrinks to 439 pages, about the size of the average trashy novel. So it is short enough for anyone to read and understand. Anyone. You can do it yourself at:
http://finance.senate.gov/press/Bpress/2009press/prb101909.pdf
So if your Congressperson bloviates about this bill being too huge to read, you might help him or her find another career when the next election comes around.
I would hope the bill is as long as it needs to be to be sure no one ever again goes bankrupt because of our health care system, that everyone is covered, and that our costs are reduced by 1/3. I'll let you know after I finish reading the bill. But of course by the time the mark ups are done it will be unrecognizable from its current form.
I guarantee you one thing though: this is a momentous moment in our country's history. Health care reform will only be as good as what is demanded by each and every American. I wish I could remember who first said this: the best measure of our humanity is how large a circle we have to draw to include everyone we think of as "us". On this issue, let's draw a circle large enough to include every citizen.

The Economy is Recovering

I circulated this article in one of my client e-letters back in April. I still contend that it is a myth that our economy will "recover", whatever that means. The key idea here is WE DON"T WANT IT TO GO BACK TO THE WAY IT WAS. Our economy was (and still is to a large extent) based on fluff, fantasy, unsustainable excess, magical thinking and unrealistic expectations.

You might find it helpful to peruse an excerpt from General Electric CEO Jeffrey Immelt's speech, delivered in Toronto on February 11, where he discusses the concept of "reset".

"If you think this [recession] is only a cycle you're just wrong. This is a permanent reset," he said. "There are going to be elements of the economy that will never be the same, ever. Smart businesses are the ones that are going to hunker down in the cycle, which you've got to do, but that also understand we're going to come out of this in a different world."

This is what I've been saying for over a year now. And this is why cycle theorists like Harry Dent (chief economist for AIM funds) had been wrong over and over again. The media tend to discount such "negativity" as they keep propagating the "optimistic" myths that Wallstreet keeps feeding the investing public:

"This is just a cycle. Things will bounce back.", "Everyone has lost money.", "No one can predict the market.", "We're doing the best we can.", "We've hit bottom. The market can only go up from here.", "Things will bounce back.", "Don't lock in your losses by selling out now." etc. ad nauseum. None of those things are true! Here is what is true:

You can protect your money from the future market declines that are on the horizon without missing out on gains if and when the market recovers. But only if you take action. Take the Wealth Index questionnaire as a first step. It is free. It takes 20 minutes. It helps me assess the best course of action for you. Here's the link: WEALTH INDEX

Myth: Fee-only advisers are always better

Dear readers, 

How advisers are paid is no guarantee of honesty. Often it is a good sign if a fee-based planner doesn't charge you a fee. Most of the best financial products pay commissions because the best companies recognize that advisers add value in screening and recommending financial alternatives for their clients. That's why I usually don't charge a fee for the often substantial services I provide, such as the wonderful Wealth Index: I don't believe in "double dipping" my clients. 

 This lady, however, will coin a new epithet about the financial services industry, "My investments went Zabalaoui!". February 19, 2009- Financial Adviser Magazine Fee-Only Pioneer Guilty In Ponzi Scheme A woman considered among the pioneers of the fee-only financial planning movement has pleaded guilty to using a Ponzi scheme to embezzle more than $3 million from clients. Judith Zabalaoui, 71, bilked her New Orleans area clients between 1993 and 2007 while working as an independent advisor, according to published reports. Zabalaoui was charged with gaining limited power of attorney over client funds by promising returns of between 13% and 26% if clients invested in two companies, the reports said. The companies, however, were nothing more than UPS store mailboxes that Zabalaoui rented in Colorado and Delaware. She also set up phone lines and created phony letterhead and employee names to support the ruse. The funds were embezzled using multiple wire transfers from Charles Schwab custodial accounts to her personal account. She then used the money for on an array of personal items—including clothing, vacations and rent payments—for herself, friends and family members, according to the Times Picayune in New Orleans. Most of her clients, according to published reports, came from Resource Management Inc. in Metairie, La., which she founded in 1974, according to the Times Picayune. By the time she left the firm in 1991 to set up her own business, Zabalaoui was regarded as one of the pioneers of the financial advisory profession and among the first advisors to transition to a fee-only model in the early 1980s. She became a certified financial planner (CFP) in 1979, but the certification expired in 1999, according to the Times Picayune. Resource Management has denied any involvement with Zabalaoui since she left the firm and has not been accused of any wrongdoing, according to the Times Picayune. She pleaded guilty in Federal District Court in New Orleans on Wednesday to five counts of mail fraud as part of a plea agreement in which she has agreed to pay restitution to clients. At her plea hearing, she told the court that she moved to Birmingham, Ala., after Hurricane Katrina and that she has suffered from depression, according to the Times Picayune. Zabalaoui faces a maximum sentence of 20 years in prison, a fine of $250,000 and three years of supervised release for each count against her, according to published reports. Her sentencing is scheduled for May 20.

What's true about life. This is no myth.

Nellie

I was feeling down the other day; overwhelmed, angry and sad, as if my priorities were all helter skelter. So I walked up the hill by my office to get some advice from my wise friend Nellie.
I whined and complained and shed some tears. She was patiently silent.
I asked her, “Tell me what’s important. Where should my focus be? What are the big three or five or six things I’m forgetting?”
“Well”, she began, “I start with the heart, the faithful heart. It so easily and consistently holds us mere seconds away from death. So start with the heart.
Next, the breath. Isn’t it a joy to sit here with me and share this fresh sweet air and all that it carries?: Oxygen, the fragrance of the unseen, the eternal ebb and flow of life, universally shared by all beings. The harmony of the heart and the breath is a key lesson for us. Pay attention to the breath.
Then, I would rank being fed way up there on the list. Think of all the hundreds of ways that the world sustains you and how you help sustain it. We are here to be fed.
And finally I personally really enjoy being held in loving arms, in the gaze of a beloved for whom I am also beloved.
These aren’t in order of importance of course; they all hinge on one another. ”
She was right. I was taking life’s most important basics for granted. I released a big sigh, thanked her and turned to walk down the hill, glancing briefly back at her weathered headstone which reads:
Nellie Hunter
Lived 22 days.

The Market is Recovering

Two years ago it was obvious to a lot of us that the market was held up solely by Wall Street's hot air, the unrealistically limitless expectations of the public, and unprecedented phantom value (a record % of our economy consisting of financials, most notably derivatives, & most notably credit default swaps which- before they blew up -comprised nearly $40 tril. of the global economy!)
The scariest fact about the current economy is that the US debt to GDP chart looks like a hockey stick. The only other time in our history it has been that high was just before the Great Depression. But here's a link to the most skeptical article about that:
http://www.businessinsider.com/2009/2/us-debt-levels-are-fine-debt-to-gdp-chart-is-wrong-and-meaningless
If the chart is so "wrong and meaningless" why is it correlated with economic debacle?
The second fact is price/earnings ratios. Here's another contrarian article:
http://moneynews.newsmax.com/michael_carr/michael_carr/2009/02/26/185905.html
The bump up in recent quarterly earnings is not from sales in most cases. It's from expense reductions and accounting magic as overpaid "managements" attempt to justify their existence. Layoffs are one short term strategy being used to the hilt.
Which leads us to the 3rd factor; unemployment. We have yet to feel the multiplier effects of this job decimation. Who is going to buy all the stuff? Who is going to make all the stuff to buy? See the most recent report at: http://www.bls.gov/news.release/pdf/empsit.pdf
No one has given me any evidence that the market will not seek new bottoms. Soon. And there is plenty of evidence that it will. But I could be wrong.
So, regardless, wouldn't it make sense to eliminate risk of loss without missing out on market recovery if I'm wrong and it indeed happens? Most folks don't even know that it's possible to do that, much less how easy it is.

20 Questions for your Financial Adviser

20 Questions You Must Ask Your Financial Adviser

If you have a financial adviser, or are in the process of selecting one, ask these questions to be sure you’re getting all the information you need to determine if that adviser is a good fit for you. Remember, not everyone has your best interest at heart. It’s up to you to make informed decisions about who is going to guide you in the management of your money and assets. You have to ask the right questions or you may not get the important information you need.
If you don’t have an adviser, I would urge you to get one. There are simply too many new products and ideas to keep up with. A good adviser will be on top of the market, market alternatives and new approaches that can best serve your needs. While selecting your adviser may take a little work, the payoff should be well worth the effort.

1. What makes you different from other advisers?
Since many advisers offer the same products, most advisers will tell you that they are different because they offer high quality personal service. While this is important and may also be true, you should still carefully consider the adviser’s philosophy of creating a plan, investing, product specification, etc. Remember, at the end of the day, selecting an adviser is not just a personality contest but also an important business decision about your hard earned assets. The people who help you with your money should be worthy of handling it and be able to relate to your specific wants and needs.

2. Are you an independent adviser or do you work for a company as a captured agent?
Be wary of advisers who are associated with or employed by one company and who only recommend that company’s products. These products may or may not be the best product for you. Sometimes, if you know what you want, it is good to work with a specialist who represents only one type of product i.e. bonds or annuities. Still, think twice if that person only represents one company and feels that that company’s products are always the best for you. An independent adviser works with multiple companies and can find the best product amongst the many companies he or she represents.

3. What kind of clients are a good fit for you?
Good advisers are selective about the people that they want to work with and have clearly defined who those people are. For example, some advisers require that they make all investment decisions without your input. Others might want to work with people who are more socially conscious. For some advisers, it’s all about the money and they don’t really relate with how money affects other things in your life. And for others, they take a more holistic approach and want to work with people that think in a more holistic way. When you are working with or interviewing an adviser ask yourself, ‘Are we on the same page in the way we think about money and life?’ If so, that may be the adviser for you.

4. What percentage of your business are people like me, in my situation?
Find out what types of people the adviser usually works with. If you are retired, for example, perhaps you would have more confidence in an adviser who specializes in retirement. If you are younger, maybe you would prefer an adviser that works with younger people. Advisers are much like doctors. You wouldn’t go to a knee surgeon to have your heart repaired. Think about your adviser the same way.

5. What products do you sell the most?
Every adviser leans to one product or another. Find out from the adviser you are talking to what that is. For example, maybe the adviser likes to use bonds. That’s OK, but bonds may not be for you. Another adviser may use annuities a lot. That’s OK too, but what if you’re the kind of person that doesn’t like annuities? There are no rights or wrongs here, just good data so that you know what to expect and what your adviser will probably recommend for you.

6. Are the products you sell the most from just one company?
Does the adviser, even if he or she is an independent adviser, primarily use the products of one company? If he does, find out why. Maybe those are the products he knows best. Perhaps those products have higher commissions. Or maybe the adviser works for the company whose products he or she is recommending. Remember, many advisers will tell you that they represent many companies, but will still have their favorites and biases. You need to know if those biases are right for you.

7. How do I know you’re not just selling me high commission products?
Ask the adviser how much he or she is making on the products that are being offered to you. If its management fees, are they published? If it’s trading fees, are there discounts? If it’s insurance or annuities, just ask how much they are making –what is the commission that they are going to earn on that product? See if they give you an honest, open answer. Many advisers, for some reason, don’t want you to know what they are making. Remember, at the end of the day, it is you who is paying, either up front or behind the scenes. So, you have a right to know.

8. Do I always meet with you or do you send me off to an assistant once I’m a client?
In the name of efficiency many advisers will spend a lot of time with you when they are trying to get your business and then, once the sale is made, disappear and move you off to an assistant. Find out what the adviser you are interviewing does. Sometimes it’s OK to work with an assistant, especially if it’s just paperwork or data gathering. Too often, however, the assistant tends to become a total replacement of the adviser, leaving you behind. Find out how your adviser will work and make sure you feel comfortable with his style.

9. Can you rank my portfolio against the S&P Index for growth and risk?
Most advisers want to talk a lot about how your money will grow, and very little about how much you could potentially lose. Don’t get caught in that trap. While it’s great to talk about making money, there is always the danger of losing money. Make sure you know the potential downside losses of your portfolio. Ask your adviser to compare the growth and risk of your portfolio with a standard like the S&P 500’s growth and risk. He should put that on a chart for you so you can see historically if you are taking the appropriate amount of risk for the growth you are getting.

10. What is your theory of asset allocation?
There are two general types of asset allocation. The first is the number of different types of positions you own (i.e. individual stocks). The second is the number of different types of products you own. If your portfolio is exclusively mutual funds, you many own many different stocks through the mutual funds, but you only own one type of product, mutual funds. There are many other types of products and a well allocated portfolio will include more than one type of product.

11. How long have you been in business?
The best thing an adviser can offer you is his or her experience. Advisers that are new to the field may have only worked in an up market and not been tested in a down market. Some new advisers may only understand a few different product types i.e. annuities, and recommend what they know best as a ‘fix it’ for everything, rather than what is good for you. It’s not that newer advisers can’t do a good job for you, but experience is definitely a plus. Work with a more experienced adviser unless you are quite confident that the newer adviser is knowledgeable and competent.

12. How long have you been with the same company?
Advisers that jump from company to company may not give you the feeling of stability and trust that you would like to have. If you are working with someone who changes companies often it’s better to know that up front rather then getting a stream of announcements in the mail that your adviser has moved once again.

13. Are you an active money manager or a passive money manager?
If you’re looking to buy stocks or mutual funds, this is important. Active money managers try to pick stocks, bonds etc. that they feel will beat the market. Passive money managers believe that you cannot consistently beat the market by picking stocks and buy indexes or a majority of the stocks in a market sector or class. These types of advisers are called passive money managers and are concerned only with market classes, not with how each individual stock within the class will perform. This can get very complicated but you should know on which side of the fence your adviser is and if that is the side you prefer.

14. Why do you believe you can pick stocks or mutual funds that can consistently beat the market?
If you’re looking to invest in the market and the adviser is an active money manager, or someone who uses a lot of mutual funds (who most often are also active money manager), find out why he or she is so confident that they can consistently pick winners in the market. If the adviser tries to convince you based on past results be very wary. Most mutual funds that are ranked #1 one year are ranked far lower the next. The same is true of individual stocks and individual stock classifications.

15. What percentage do you think my portfolio could lose if we had another crash like in 2000 –2001?
The adviser should be able to answer this question in specifics i.e. if you had this type of portfolio in the year 2000 it may have lost as much as 40%. If he can’t or won’t, it might be time for you to move on. Knowing your downside risk and exposure to loss is very important and should be discussed.

16. How do you get my financial plan to get me where I want to go –to integrate with the things in my life that are more important than money?
Your money is just fuel for the journey to reach your goals, hopes and dreams. If you worry about money, ask the adviser how he is going to deal with your worry, not just the money. If you want to purchase a second home, that should be a primary consideration in picking your portfolio allocation. Make sure your adviser can see beyond the money into your material and emotional needs and make your money work for you in the full scope of your life.

17. What process do you use to determine if we are a good fit or not?
Get agreement when you are interviewing advisers as to how they plan to work with you. How many meetings; what will you get at each meeting; when and what decisions do they expect; what happens if you say ‘no’, how will they handle that; how will they help you get through your decision process? Understand what your adviser expects so that you don’t feel pressured or get blind sided during the planning process.

18. How do you decide whether I need an aggressive or conservative portfolio?
Advisers are required to determine your risk tolerance and choose products accordingly. Yet, this is not enough. The adviser must also determine what growth rate you need, and this may not be the growth rate that you expect to get or are wishing for. It’s one thing, for example, for an adviser to tell you that you should get 10% -12% return in the market. It’s quite another thing when the adviser tells you that you must have 10% -12% return to, let’s say, not run out of income. You may be taking more risk than you need to take by aiming for a return far higher than you need to make. Get your adviser to talk about your needs, not your wants.

19. If you had to pick one weakness you have as an adviser what would that be?
Getting the adviser to talk about his or her weaknesses will reveal a lot about who the adviser ‘really’ is. Nobody is perfect. Everyone is better at some things and not so good at others. If your adviser thinks he or she is perfect, you probably should go somewhere else. Sooner or later your advisers imperfection will show up. Maybe he doesn’t return calls as quickly as he should; is weak on follow through of servicing projects; gets too excited about up markets. Find out ahead of time and you won’t be disappointed or surprised later.

20. What would you say is your major strength as an adviser?
Here’s your advisers chance to toot his or her horn. Just sit back and listen and see if you like what is said. Does it appeal to you or not? Do you and the adviser share the same focus? Is the adviser’s strength a strength you would like on your team? If the adviser goes on and on about himself and doesn’t relate what he can do to your particular situation, you might want to reconsider whether he or she is a good fit for you.

If you are looking for an adviser, are unhappy with your current adviser, or just want a second opinion about how you are doing, I would welcome the opportunity of meeting and speaking with you. When you are working with me or any representative from WealthFinancial Group, there is never any pressure or obligation. And, of course, we will answer all your questions.

Gary Duell
Managing Member
Silver Sage Advisers LLC
13100 SE Sunnyside Rd Suite B
Clackamas OR 97015
503-698-4812

PS: Many of my clients build real wealth by knowing their Personal Wealth Index numbers. Have you taken your Wealth Index yet? The 20 minute Wealth Index questionnaire is easy to take and will help you integrate your finances in the full context of your life. It provides invaluable information and scores as important as your credit score, blood pressure, weight and cholesterol levels. Know you number, build your wealth! Call for your Wealth Index Booklet now and I will get it off to you right away. Or do it now online at http://www.wfgnetwork.com/garyduell

20 Questions to Ask Your Adviser is published courtesy of Wealth Financial Group

Do-it-yourself Personal Stimulus Package

Because the last administration squandered trillions of our money, Obama's anti-recession toolkit is virtually empty; his Stimulus Package will be too little too late. But take heart! You can execute your own do-it-yourself Stimulus Package. But first, a quick discussion about one glaring economic myth.
One of the many weaknesses of economic forecasting is that it attempts to capture and project human behavior in gross numerical terms. What's worse, the measurements we use tell us little about what we really need to know about ourselves as a community.
For example, few people know that Gross Domestic Product (GDP) includes money we spend on waging war, building & running prisons, cleaning up superfund pollution sites, treating drug babies, fighting meth addiction . . . you get the picture. These are failures. But they all increase GDP, our primary measure of economic success. Yay, our GDP increased!
But closer to home, visualize your own Household Domestic Product, that is, your total household spending. Just having it increase wouldn't alway make you feel better would it? What if your spending doubled because you got cancer? Or went through a messy divorce? Or were in a car crash. No, to feel successful it matters what you got for your money.
Having said that, my suggested DIY Personal Stimulus Package isn't about spending money, per se. It is about taking action, which I've classified under three C's, Conserve, Connect, Create. The three C's are interrelated, not separate and distinct steps. And what's best is they don't take any money, necessarily:

CONSERVE: If you've lost your shirt in the stock market, what do you have left that you value most? Your health? Your family? Your job? The balance of your IRA? Sit down and take time to list what really matters to you and how to prevent losses in those areas. If you're depressed about losing half your retirement and you start drinking too much cheap booze then you're squandering your primary remaining asset: your health. You should be doing the opposite! Conserve your health. Take up yoga. Eat right. Get enough sleep. Meditate. Go to church, I don't know. Whatever works for you to conserve your remaining, top priority assets.

CONNECT: I keep hearing from all the business gurus that those who advertise and promote themselves during a recession will do best in the recovery. All that means is connect, whether you are a successful business or an unemployed dishwasher. Connect.
The worst thing you can do is withdraw into your cave, eating & drinking too much in front of the TV. That will trigger a downward spiral from which it will be difficult to extricate yourself. Get out and get known. If nothing else, have a party! Who can you go see, email, write to, call, have lunch with, invite to an event? Where can you look for work, for business, volunteer, or get help? Connect.

CREATE: This is similar to connect. How can you create value out of thin air? Anything you can do to increase your value in society will benefit all of us, thereby stimulating the economy as well as rewarding you.
What if you pledged to visit once per week an elderly shut-in down the street. You may perk her up enough to sufficiently improve her health- or provide early intervention -saving Medicare money, for example. What if you followed your dream of creating art, took some classes, interned at a school or business, and parlayed that into a new career? What if you started a blog that got noticed and made you famous (every blogger's fatuous dream)? Create.

They Myth That Government and Taxes Are Evil

In her book, "10 Excellent Reasons Not To Hate Taxes", editor Stephanie Greenwood outlines just that. For your convenience, I will summarize them for you.

1. Progressive Taxes Are A Good Deal
2. They are a moral obligation
3. They can strengthen the economy
4. Excellent public schools depend on taxes. And we all benefit from the education of others.
5. Taxes help families raise kids
6. Pollution taxes may save life on earth. And they will definitely reduce health care costs.
7. Taxes can promote economic justice for all. That is far different than "socialism".
8. Taxes pay for economic opportunity, supporting a system that rewards hard work and creativity rather than "winning the ovarian lottery" [inheritance] as Warren Buffet puts it.
9. Taxes are good for business, providing the necessary collective infrastructure, resources, and law inforcement necessary to invest and profit from running a business.
10. Taxes fuel democracy

The Myth that Indexed Annuities are Evil

Any financial choice has only three potentials: it will either improve your financial situation, harm it, or have no effect at all. If a financial choice improves one's financial situation, then it would probably be a very popular choice. Equity indexed annuities are taking in billions.

The fact is, conservative savers are fleeing for safety because:

• Talk of U.S./global recession is widespread
• Banks continue experiencing massive losses
• Inflation is the highest since early 1980’s
• Rising unemployment becoming a big problem
• The sub-prime/housing problems will not go away
• Stock market is wildly volatile & nerve-wracking

Safety, principal guarantee & peace of mind are very much in demand. There's only one safe money place to get upside potential with zero downside risk — index-linked annuities.

Re-Engineering Retirement- the myth of being saved by "the market"

Re-Engineering Retirement:

Take the "oops" out of retirement uncertainty

The expression "oops" doesn't inspire confidence in procedural matters of either health or finance. If your surgeon says it just before you go under, you're probably going to have some concerns as soon as you wake up. An "oops" in a retirement strategy can be just as worrying. In the good old days of sustained bull markets, no real strategy appeared to be needed: The Market would make up for starting too late, saving too little, and investing in the wrong places.

To help reduce complexity and uncertainty in this potential "oops" situation, Allianz Life has developed the "Re-Engineering Retirement" program. It involves discussions around three levels of retirement expenses, seven sources of retirement income, and five retirement options.

Re-Engineering Retirement is a solutions-based process. Through it, you can come to understand many of the elements that contribute to a confident retirement. Hopefully, with my assistance, it will take the "oops" out of your retirement party.

The five retirement options allow me to show you that if your current assets will not meet your future retirement goals, there are still some pre-planning solutions for you to consider.

Option 1: Do nothing

Your first option is to do nothing and simply be satisfied with the way things are. When you finally assess the reality of a significant reduction in your standard of living, it may be too late to do anything about it. As a financial professional, I want to have a well-documented file. Our Re-Engineering Retirement workbook reminds me to make notes on what you decide- or don't decide -to do.

Option 2: Save more

The second option deals with putting more away now for future delivery. This is always easier said than done considering all the current economic pressures; but putting away even a little more now is helpful.

Option 3: Work longer

The third option involves you working more years before taking retirement. This is always a little emotional since many people work because they have to, not because they want to continue in a profession they really enjoy. This option could also mean working part time, considered to be supplemental, to allow for the maximum benefit from Social Security.

Option 4: Risk more

The fourth option is to take on more risk in the accumulation phase. We all know that this can lead to greater uncertainty. No one's risk tolerance goes up when anxiety sets in. It's just the opposite, and what you have already accumulated might be jeopardized by taking on additional risk and then possibly bailing out of the market at the worst possible time.

Option 5: Re-Engineer

The fifth option is a combination of all these elements.

If you want to learn how to "re-engineer" the five options discussed above and help mitigate the possible "oops" potential in your retirement process, call me about Re-engineering your retirement. 503-698-1110

All the Best,

gary

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Ten Steps to Being a Savvy Retiree

If you haven't figured it out already, I like lists. I don't like failure. Aviators- regardless of their experience -all use preflight checklists due to the extreme consequences of failure in their avocation. So to keep my clients from crashing and burning, I like to promote checklists. This one is from an old American Skandia publication: "Ten Steps to Being a Savvy Retireee" according to my editorial license. By the way, nothing here is a myth, contrary to the blog title.

ONE: Meet with your financial adviser(s). The original publication had this as step #10. But why waste time or take the risk of missing out on the latest developments? Advisers who have been around for a while have seen just about every possible type of client, from extremely successful to woefully unsuccessful. Wouldn't you like to know who to emulate and who to avoid?

TWO: Calculate the financial impact of working in retirement. You may suffer reduced Social Security benefits or higher taxes. You need to know your Social Security "breakeven corridor".

THREE: Understand the outcome of early retirement. 71% of retirees who retire earlier than they preferred (due to health or layoff) wished they had saved more. Plus, you may incur penalties and miss out on substantial compounding by retiring too early. Finally, you may unduly reduce your Social Security benefits. Permanently.

FOUR: Choose the right assets for income. This is a relatively old statistic but it's probably even worse today; American incomes decline by roughly 50% between ages 65 & 85. An often neglected factor is taking income from the wrong assets at the wrong time. If I were a financial journalist, I would give you a snappy rule of thumb. But it just depends on your unique circumstances.

FIVE: Compare your payout/income options. This was more relevant when pensions were common. They're not anymore. But generally, if you can, take the smallest distributions you possibly can from qualified accounts (IRAs, 401k's, etc.).

SIX: Build a diversified portfolio. Actually, the word "diversified" has assumed more meaning than it deserves. The idea of "safety" has been bundled into it, illegitimately. You can have a diversified stock portfolio and still lose your shirt. I would say, build an appropriate portfolio that does not subject you to greater odds and degrees of loss than your lifestyle can handle, and then only if the rewards are commensurate with the risk. Finally, why take any risk when you don't have to? The greatest risks result from doing nothing.

SEVEN: Develop a prudent strategy to meet your lifetime expenses. This all depends on your plans. Are you more concerned about security, leaving money to your kids, charitable donations? Be sure your strategy deals first with your financial survival. Be sure you will be able to pay the electric bill and buy your prescriptions before you get grandiose about the grandkids.

EIGHT: Take care of the legal stuff! Is your will old? Do you even have one? How about powers of attorney, advance directives, and trusts. If you would like to be a financial and administrative burden to those you leave behind, then ignore this step.

NINE: Be sure your beneficiary designations are appropriate. For example, many IRA custodians & annuity companies now allow you to just check a "Stretch" box in the beneficiary section if you want your IRA balance doled out over a number of years to your beneficiaries so they don't take a big tax hit in one year. Beneficiary designations are a simple, free, and automatic method to pass most of your money assets outside of probate. But don't fiddle with them without expert advice.

TEN: Plan your retirement lifestyle. I know few who do this. They just hope for the best and brace themselves for the worst. Or, they hunker down and deny themselves unnecessarily. What do you want to do, have, be? Those are the questions.

Asset Protection now easier

Think You’re Leaving the “Family Farm” to the Kids? Think Again. The State of Oregon May Have Other Plans.

You’ve worked hard all your life, been retired for quite a while, but now the old bod’ is wearing out and you need help. Your fixed income isn’t enough to pay for in-home assistance so you scour the area for facilities and settle on a facility in Oregon City. However, you and your wife’s $4000/mo. income- which seemed handsome before –is no match for the $6000 monthly fee. Your liquid assets are quickly kaput. You go on Medicaid. Five years later you die. Your wife remains healthy until her death a year later. The kids inherit your $500,000 “farm”, right? Nope.

Ever hear of the ominously named Omnibus Budget Reconciliation Act and, specifically, the 1993 Estate Recovery Mandate for:

• Nursing home or long term care
• Home and community based services
• Hospitalization and prescriptions (at state’s option)?

This provision requires States to go after Medicaid beneficiaries’ assets to recover the State's costs of proving your care.

Ironically, the act was modeled after Oregon, which has had estate recovery provisions since the 1940’s. But here’s why you find this so interesting: In the above example, assuming Medicaid pays 100% of your nursing home costs for the 5 years, that’s $360,000 ($6000 x 12 months x 5 years). Plus, you had to be hospitalized twice for those heart attacks, at $25,000 each (they were having a special) for a total of $410,000. Before any of your estate passes to anybody, Oregon is there with its pre-death TEFRA recovery lien to collect its $410,000. The three kids get $30,000 each; $30,000 each from your lifetime of labor and frugality.

Naturally it’s not that simple. You can retain some property and income, called “exempt assets” as shown below. Until your spouse dies you can keep:

• Up to $1911/mo. gross income
• $104,400 in “Community Spouse Resource Allowance” (“community” means the spouse is not institutionalized)
• a home
• a car
• household goods
• business property & business real estate
• prepaid burial provisions up to $1500

The State can take the following nonexempt assets:

• Cash over $2000
• Stocks, bonds, IRA’s, Keogh’s. CD’s, T-bills, T-notes, Savings bonds (you get the picture)
• Whole life insurance
• Vacation homes
• Second vehicles (kiss the Harley goodbye, Grandma).

“Well”, you might say, “I’ll just give all my stuff to my kids before the State comes knocking on my door.” Trouble is, with a few exceptions, if you do that within 60 months of your application to Medicaid then you will be subject to penalties. Say for example you give your $200,000 in CDs to the kids just before you go on Medicaid. Based on a $5360/mo. formula, Medicaid would then deny benefits for 200,000/5360 = 37.31 months, requiring you to spend $200,000 of your own money anyway, assuming you even have it. If you do not, they will recover it from your spouse’s estate.

What can you do about this? Here are some advanced planning ideas, the first of which just received an additional boost for Oregonians this year, and I’ll discuss that one first because it’s the easiest no-brainer solution.

#1: BUY LONG TERM CARE INSURANCE !
Let me confess. This is an area of significant frustration for me, not just from the behavior of other people but my own as well. If you know in advance that there is a 100% chance a specific event will take place in the future then of course you would prepare for that event now, right? Rarely. For example, I’m never ready to do my taxes until mid-April the following year. Never. And we all know about the following certainties. Someday,

• We will stop working
• We will be unable to care for ourselves
• We will die

Sure, for some unlucky folks (or lucky, depending on your point of view) all three may happen simultaneously. But for most of us these stages will happen in this order: we will stop working, we will need assistance, we will die. And for the really unlucky (and their unlucky families), the middle period will be the longest.

The odds of a male needing long term care in his lifetime are one in three. For the women, the odds are one in two. Yet why is it that only about 8% of eligible Americans take responsibility and do something about this? And why do even fewer take other advanced steps to deal with it? It’s not fun to think about these things while watching American Idol (Actually, I much prefer thinking about disability and death versus watching American Idol.)

Here is why you should buy long term care insurance as soon as possible:

1. I really need the business. No, even though that’s true, you should never buy a financial product to meet the needs of the salesperson no matter how much he begs. Seriously, here are the real reasons:
2. The Government will not take care of you. The Government is sending ever stronger signals that you’d better be self-sufficient, signals in the form of tax deductions, credits, estate protection, etc. It’s not going to get any better in the near future. You buy long term care insurance with your health in addition to your premiums. Once you need it, it’s too late to buy it. You are reaching out with the long arm of foresight to keep a door open for yourself in the future, the door to choice and security.
3. You can’t ever save enough. If, instead of buying insurance, you and your spouse just invested your premiums, and, could earn a consistent 6% rate over the next 20 years then you would have enough money to pay for about one year of care. For one of you. The average length of care is 3-5 years. Even the wealthy buy Long Term Care insurance because they understand the concept of risk transference, i.e. having an insurance company assume most of the risk of loss of their home, their cars, their assets & income. Just because you could afford to rebuild your burned up home doesn’t mean you should. The same is true for long term care.
4. There is no advantage, at all, to waiting. No matter when you eventually buy Long Term Care Insurance, you will spend more in total premiums than if you buy it now. That’s because every eight years that you procrastinate, the premiums double. Lock them in now (caveat: not all policies have premium guarantees).
5. The tax man will help you pay for it. Federal deductions and Oregon tax credits can reduce your total net premium cost by 50% or more. If offered as an employee or executive benefit, premiums are fully deductible to your corporation and benefits and premiums remain tax-free to the employee/executive.
6. Long term care is already costing your company big bucks, $2772 per care giving employee per year.
7. The State of Oregon, on January 1st, became a Long-Term Care Partnership state. Remember those State Medicaid liens? To the extent you collect benefits from your own Long Term Care insurance policy, those liens are eliminated, your assets shielded. For example, if your policy paid you $300,000 while you were in a nursing home, Medicaid would exempt that amount from its estate recovery.

#2: Have an attorney draft an Income Cap Trust for you. See http://www.dhs.state.or.us/spd/tools/program/osip/incap.pdf for a sample. This is an irrevocable living trust agreement that can help you qualify for Medicaid by diverting income into a trust, subject to certain limitations.

#3: Begin the legal transfer of assets to your heirs as soon as possible to take advantage of your $12,000 ($24,000 four couples this year) annual gift tax exemption. The limitation is not per donor, it is per donee. In other words, one person can give $12,000 to as many people as she likes. Such asset transfers are easy to screw up so don’t even try without consulting with an elder law and/or estate attorney.

#5: Consider charitable annuities and trusts, especially for highly appreciated assets such as real estate and stocks which you’ve owned for a long time. These arrangements can provide surprising benefits including guaranteed lifetime income, generous current and ongoing tax deductions, as well as the ability to do well while you’re doing good. In many cases you can be much better off by gifting rather than through an outright sale of an asset. A knowledgeable adviser can help you sort through the many options available here locally.

So, going back to our original example, wouldn’t you prefer that your three kids get $167,000 each- instead of a paltry $30,000 -out of your $500,000 estate? Then get smart, get help, and get going!

[DISCLAIMER: this is an unofficial opinion piece based on the author’s best knowledge of the subject. It is not intended to be legal interpretation of State or Federal law or tax regulatioins, nor is it intended or implied to be legal or tax advice. Consult with your elder law attorney and CPA to see how your specific circumstances might be affected]