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:

1. Market risk- Your principal is- or can be, even with variable annuities -protected from downside risk.
2. 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.
3. 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.

There is a caveat.  But it's a good one.  Because annuities are issued by insurance companies, they are regulated by each State's insurance department.  So availability varies widely from state to state.  Oregon is especially tough so a lot of the companies & products listed in the Barron's article are not available here.,

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.

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.

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:

• Protection of principal
• Predictable future minimum values
• Lack of market risk
• Guaranteed lifetime income
• Leveraged death benefits for heirs
• Inflation protection

I'm not saying one can have all of these features at once in the same annuity but it is possible to accomplish all these goals with an annuity portfolio or "laddered" annuities.  But that's not what this post is about.  I wanted to make just one quick comment about chapter 15 in "Debunkery".

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.

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.

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:

1. 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"?
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.

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?

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.

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.

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?

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:

1. 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.
2. 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.
3. 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.
4. 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.
5. Studless tires accelerate & stop better than studded tires.
6. 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.
7. As the studs wear down, the effectiveness of studded tires (already inferior or just equal to studless tires) diminishes.

Although it is merely anecdotal, my personal experience bears out all of the above.  I had a 4x4 rig with traditional studded tires on it & although it did better than with ordinary tires it still did poorly on black ice.  Our Subaru Forester, armed with Blizzaks, cruised up the road to Timberline lodge on solid unsanded black ice as if it were dry pavement.  I had at the very least expected to need some inclement weather driving skills.  But I didn't.  It was pleasantly boring instead.  You've all seen gouges in icy roads from spinning studded tires.  Those Blizzaks stuck to ice like glue.

MYTH: Presidents always tell the truth

I know. The title of this blog post goes without saying, unless you're a tea-brain talking about your favorite politician of the month. But I never for a moment thought that Barack Obama would be the latest President to disprove this myth: On December 6, he spouted a whole raft of lies. ( Sorry, with his credentials I can't give him the benefit of the doubt for simply being ignorant like his predecessor).

So here are three of the lies about his deal with the Rethuglicans to extend the Bush tax giveaways:

1. "The typical American family would see their taxes go up by $3000 next year".  False.  For that statement to be true, the "typical" family would have to have taxable income of $135,000.  Actually, the median family income is $52,000/yr.  And if Bush's welfare-for-the-wealthy were allowed to expire the typical family's tax would only increase by about $335.  Don't believe me?  See My Tax Burden.  Close, only 1000% off.   Strike one, Mr. Obama.
2. This could result in "well over a million" jobs lost.  False.  The exact opposite is true.  Supply side economics has been thoroughly and repeatedly refuted, ever since the term was first raised up the flagpole by Nixon's economic adviser Herbert Stein, a conservative Keynesian.  What drives any economy is demand not supply.  When money is spent, demand increases and jobs are created.  When money is secreted overseas, which is where much of the top bracket tax cuts go, circulation of currency is gutted & demand plummets.  (Nobel prize winning economist Paul Krugman estimates continuation of welfare-for-the-wealthy could take $3 trillion out of the economy over the next 10 years.)  If tax cuts create jobs, why the massive bleeding of employment during every single year of the Bush administration??  Strike two Mr. Obama.
3. Although he didn't specifically say it, the nature of his speech and its astounding concessions to Rethuglican leadership imply that there were no alternatives.  But the fact is, if this Congress lets the tax cuts expire, who cares if the new Republican majority tries to reinstate them next year?  Just veto their bills Mr. President.  And right now, force these thugs into a public up-or-down vote against their own unemployed constituents, letting their benefits expire, thereby dramatically displaying the true Rethuglican agenda:  perpetuate welfare-for-the-wealthy, keep screwing the majority of Americans.  Strike three Mr. Obama.

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.