July
2006
A Monthly Newsletter Source of Financial Sources
Don't miss this month's timely story ideas, direct dial phone
numbers, and E-mail addresses of these accessible experts!
INVESTMENTS
• Maintaining a Proper Perspective on the Markets
RETIREMENT
• The Pending 2010 Roth 401(k) Expiration Date DOES NOT Justify Plan Sponsors Dragging
Their Feet About Implementation
• Working Differently: A Necessity For Boomers Who Have Not Saved
Retirement Dissatisfaction May Require Meaningful Work
PERSONAL FINANCE
• Including WorldCare Independent Medical Consultation Services Into Health Savings Accounts (HSAs) Protects Account Holders’ Health And Assets
• Giving Your Child A Taste of the Workforce Is About Much More Than Money
• Uninsured Long Term Care Is The Looming Health Care Crisis In The U.S.
LTC planning Becomes More Imperative As Boomers Age
REAL ESTATE
• How To Make Real Estate Work For A Young Family's Future
INVESTMENTS
Maintaining A Proper Perspective On The Markets
Watching the evening news can give you a misleading and often wrong perspective on the stock market. Most commentators mention whether the Dow Jones Industrial Average was up or down and by how much, and that is just about the complete financial report, even though the Dow Jones’ 30 large blue chip stocks do not give a good representation of the overall stock market. It is a misguided focus.
Keep your focus on more than one market index and do not let a “talking head” influence your investment decisions. The NASDAQ Composite (large dynamic blend marketplace), S&P 500 (large cap blue chips), and the Russell 2000 (small cap issues) are a good group taken collectively. The New York Composite Index, a favorite of many, now contains entirely too many stocks that are interest sensitive, influencing it as much by movement of interest rates as by normal market forces.
In May the Dow was reported to be reaching a “new high”. In June the Dow sank faster and lower than in recent memory.
Remember the following key points about “new highs”:
• New highs are almost always good news; it’s just the last one that is not. In other words, you should worry when something IS NOT reaching new highs.
• To say that something is about to make the new 6-year high is essentially the same as saying it has not gone anywhere for 6 years. It took the Dow 16 years to reach a new high between 1966 and 1982.
Contrary to conventional wisdom, you do not make money 75% of the time just because the market rises 75% of the time. Why not? Because the market must recover from the down years before you can start making money again. During the last 50 years, the market reached new highs just 40% of the time. In other words, buy and hold investors have spent 60% of the time losing money or trying to get back to even.
The forces driving the markets are far too complex and forward looking to credit or blame any single event for any given day’s activity. Do not focus on the short term, news driven explanations of stock market results.
Gregory L. Morris is a portfolio manager for PMFM, Inc., managing their PMFM Core Advantage Portfolio Trust mutual fund. PMFM relies upon technically-based models, designed to remove the emotional baggage associated with the stock market. The models provide PMFM portfolio managers with signals for when it is easier to make money, when the investor has an edge, and when to make asset commitments. He has authored two books published by McGraw-Hill: “Candlestick Charting Explained” and “The Complete Guide to Market Breadth Indicators. PMFM has $750 million in assets under management. Greg Morris can be reached at: gregm@stockcharts.com, 780-222-7636.
RETIREMENT
The Pending 2010 Roth 401(k) Expiration Date DOES NOT
Justify Plan Sponsors Dragging Their Feet About Implementation.
Plan sponsors are on thin ice using the 2010 expiration date of the Roth 401(k) as justification for not implementing it. Even if Congress chooses not to extend Roth 401(k)s beyond 2010, a significant amount of tax-free retirement benefits can be accrued over the next 5 years.
A significant benefit can be obtained even if this option is available for only a single year. In some cases (especially workers many years from retirement), the percentage advantage to the Roth option in terms of after-tax retirement income can be 20% or more for every dollar contributed. That advantage increases the earlier those dollars are deposited into the plan and to those workers whose plans adopt the Roth 401(k) soon.
For workers who are able to contribute up to the maximum amount allowed starting in 2006 ($15,000 in general, and $20,000 for those age 50 and above), between $75,000 and $100,000 of contributions can be accumulated within the Roth option over these 5 years (ignoring future increases in contribution limits) - a very sizeable amount.
When given a choice, participants are using the Roth option more than originally anticipated and are not reducing their participation or contribution levels with the Roth. A recent report by Hewitt Associates, a national human resources consulting firm, found that in their review of plans covering about 61,000 active participants, nearly 8% of all participants and one-quarter of new enrollees chose the Roth option. Furthermore, these participants contributed nearly 3% more in aggregate (11.6% of pay ) than employees choosing the regular 401(k) option (8.8% of pay). Lori Lucas, director of retirement research at Hewitt, says"... our early research on the Roth 401(k) shows no notable differences in the participation and contribution rates of employees choosing to contribute to the Roth 401(k) versus a pretax 401(k)."*
Given Congress' search for ways to encourage workers to save more for their own retirements and to reduce their dependence on traditional company pensions or Social Security, there is tremendous momentum building in Washington, D.C. to make this a permanent feature of defined contribution pension plans.
*Wall Street Journal, June 28, 2006.
A white paper by David Campbell and William Urban "Missing The Boat: Why A Roth Election Should Be Part Of Your Plan Now" a comprehensive analysis of who benefits and by how much when a Roth 401(k) is implemented in the workplace is available by contacting David Campbell, or click here.
David Campbell, CFA, is a Partner with Bingham, Osborn & Scarborough LLC (BOS), a San Francisco and Menlo Park, California-based registered investment advisor with approximately $1.5 billion in assets under management. BOS has provided investment management and comprehensive financial planning for individuals and endowments since 1985. All revenues are fee only. BOS has eight principals plus eighteen team members working on behalf of their clients, including seven credentialed portfolio managers with direct client contact and eleven operations, administration, finance, compliance, and systems staff with responsibilities related to client accounts. Dave.campbell@bosinvest.com or 415-781-8535.
Working Differently: A Necessity For Boomers Who Have Not Saved
Retirement Dissatisfaction May Require Meaningful Work
Recent discussions with affluent, successful business owners and senior professionals, many of whom have sold their businesses or left full time employment, do not want to be considered "retirees." In the past men and women of their stature were expected to slow down but this cadre has created portfolios of work, even though they don't really need the income. Yet, they still aren't completely satisfied - there's still a struggle to find structure and meaning. Golf and retirement are disparaged as they look to invest in startup businesses or create their own startups.
They seem to be operating at a level of dissatisfaction that is fueled by a version of the “vacation syndrome”. They have time now for family activities and travel, but they are not comfortable spending their time solely in pursuit of leisure. They deplore the lack of structure in their lives and at their “cobbled together” portfolios of work.
Before their roles were clear to them and to their spouses. Now, some have wives who want to spend more time with them, and others' spouses are discomforted by their constant presence. Most did not discuss what life after selling the business or leaving that senior job would look like, in many cases because avoiding the discussion allowed them to avoid discord.
Transition implies moving from one place to another. In the case of high-powered, successful executives, the struggle to discover what this third age will look like for them is daunting, hard work. Their affluence gives them options, but their options need to take into consideration their marriages, their energy and health, the positioning of their assets, and the very real perception that time, now, is finite.
Here's what the options are likely to cause:
• More senior executives will decide that leaving their businesses is not as important as staying involved, but giving themselves more “time off” to meet family and travel desires.
• Succession planning for businesses will begin to write in phased retirement scenarios.
• More new businesses will be launched by men and women over 60.
• More seniors will take more financial risks than anticipated.
• Investment portfolios may be depleted more quickly than expected because of choices to fund startup costs of new businesses.
• Conflict inevitably occurs as spouses and partners try to work out a new pace for their lives, finances, where they will live, and how to get used to a new life rhythm.
A new vocabulary and new planning tools are needed to describe this search for meaning and fulfillment as these executives experience their third age. One thing is certain -- as uncomfortable as they are in their current transition -- their energy is being thrown at finding what they need.
Anne Hartman is Managing Partner of Working Differently, a firm consulting with individuals and organizations to redefine retirement. Her book "Working Differently: A step-by-step guide to finding work that works" will be published in the fall of 2006. She can be reached at anne@working differently.com, or 508-349-7921.
PERSONAL FINANCE
Including WorldCare Independent Medical Consultation Services Into Health Savings Accounts (HSAs) Protects Account Holders’ Health And Assets
WorldCare’s independent medical consultation services offer financial institutions selling Health Savings Accounts (HSAs) an innovative way to differentiate their offerings. The goal for HSA providers is to gather, retain and grow assets in these products. WorldCare’s services supports the trend toward consumer-driven healthcare consistent with the Health Savings legislation passed by Congress in December 2003. It provides Americans with more affordable health care and more control over how their healthcare dollars are spent. With the addition of WorldCare to an HSA product, account holders now have more control over treatment options they can access through leading teams of doctors and the best medical practices which are often less invasive and less expensive.
WorldCare, through its affiliations with some of the country’s top-ranked hospitals, provides WorldCare Consults, which are easily accessible, independent medical consultations. Teams of physicians provide members facing important medical decisions, with comprehensive, independent reviews of their diagnoses and treatment plans. WorldCare Consults are independent of insurance guidelines and geographic constraints and, are delivered within four business days without additional doctors’ appointments or testing required.
“WorldCare’s service is a natural fit with a HSA's product since WorldCare Consults provide access to modern best practices and unbiased medical information that empower consumers to take control of their treatment options.” says Ron Mastrogiovanni, WorldCare North America’s president and CEO.
One of the challenges confronting HSA providers is how to retain assets in an account designed to be depleted for medical expenditures. Designing a unique product, combining the best in consumer-driven healthcare, including access to leading teams of doctors and best medical practices from WorldCare, will attract customers and ultimately reduce their exposure to an outflow of funds by providing access to leading teams of doctors and best medical practices.
About WorldCare
WorldCare, Inc. was founded in 1992 by a team of internationally-renowned physicians at Massachusetts General Hospital. The company was among the first to deliver highly specialized electronic opinions from the best medical centers in North America for the benefit of patients. Their proprietary technology is FDA cleared and HIPAA compliant as a method of transmitting diagnostic and imaging text electronically. WorldCare provides millions of consumers with access to top physicians, cutting edge medical practices and best medical advice.
To reach Ron Mastrogiovanni, call Joanna Flynn, WorldCare North America
Cambridge, Mass., 617-250-5167 or e-mail jflynn@worldcarena.com
Giving Your Child A Taste of Work Is About Much More Than Money
A first job does not prepare your child for a lifetime of work or even lead to a dream career. What it does do, however, is provide practice in arriving on time, fulfilling expected work duties,, answering to a supervisor and, oh yes, receiving a paycheck and spending it wisely.
For many children, their first job outside the home is the biggest step they take to independence. Don’t be too concerned about how young our child is when they are asked to pet-sit, pick up a neighbors mail while they are on vacation, or weed a garden. Ultimately, the choice of jobs is up to your child She might choose something you do not think is interesting, but it gives her a chance to explore her interests and show up for work on time. There are always ground rules for work that help provide for your child’s safety and your own convenience as well as enforcing family moral and ethical values:
• You must agree to provide the transportation needed. No parent should be expected to drop their work and activities to provide transportation unless the time, place and schedule is pre-approved by you.
• You can restrict hours your child works even if she is driving herself to and from work. If she finds a job that requires her to walk to her car alone at 2:00 a.m., in a remote part of town, you can exercise your veto.
• She needs to learn and abide by responsible employee behavior. That includes punctuality, working hard, and giving proper notice when resigning from a job.
• There is a difference between a job that requires your daughter tom ask customers if they wish to have fries with their order, and a job that requires her to wear a skimpy uniform. It might be that neither is your choice, but one of the two violates your morals and the other is just something that you wouldn’t be willing to do.
As your child finishes high school and enters college, she is likely to start looking for jobs that give her a taste of a future career. This can be very positive and an exciting and productive time, reinforcing that working is about much more than simply earning a paycheck.
Linda Leitz, CFP, Pinnacle Financial Concepts, Inc., Colorado Springs, Colorado, is author of The Ultimate Parenting Map to Money Smart Kids,” as a book or as a CD. She specializes in helping families and individuals meet their long- term financial goals. She also helps those in the midst of divorce resolve financial issues through her company Divorce Solutions, Inc. She can be reached at 719-260-9800 or Linda@brightleitz.com.
Uninsured Long Term Care Is The Looming Health Care Crisis In The U.S.
LTC planning Becomes More Imperative As Boomers Age
The greatest expense contributing to the nation's uninsured crisis is not people with no health insurance, but those with no insurance to cover their future long term care expenses. When we talk about the uninsured in America, the focus has been on the lack of health care insurance and the cost to Medicare and Medicaid for covering health care needs. In fact, when the Baby Boomers become elders, they will create an unfunded liability of huge proportions as they begin to rely on the challenged federal & state welfare (Medicaid) programs for their services.
Medicaid is not only the payer of last resort for children and adults without health insurance, Medicaid pays the nursing home bill for those who don’t have long term care insurance and have little assets. Although only 9% of Medicaid enrollees are elderly, they account for 26% of Medicaid spending. The dual eligible, people who receive both Medicare and Medicaid, account for 40% of Medicaid spending with the vast majority (66%) of this spending on long-term care.
This blind spot looming around the long-term care crisis needs to change. Boomers are aware of the problems related to their retirement, and weigh job offers based on retiree health benefits and 401(k) matches. Most Boomers have not yet grasped the equally distressing issue of planning to pay for long-term care that meets their needs.
Many insurance agents who sell long-term care insurance do so because of personal experience with an elder whose long term care expenses decimated life savings and stressed the elder's family physically, emotionally and financially. Others have yet to grasp the importance of encouraging their clients to give themselves the retirement income and asset protection that long-term care insurance provides.
Americans must take off their blinders. It is important to design and purchase a long term care insurance policy that protects your financial well being, your safety, your dignity and comfort as you age and require care. For more information on long term care insurance, agents should visit www.SecurityAdvantageLTC.com.
Republic Marketing Group, Inc., of New Braunfels, TX, is the national marketing organization for Security Advantage™ long term care insurance. This policy has two valuable riders. The Maximum Lifetime Benefit Accelerated Rider (called the "Acceleration Rider") offers younger claimants, with less-than-lifetime benefit periods, immediate access to the inflation-adjusted amount of money the policy would be worth at age 85. The Return of Premium Rider gives policyholders the choice to either: cancel the policy before age 75, and receive premium dollars, net of any claims paid, back; or keep the policy, adding their premiums paid to their benefit pool.
Agents may get more information on Security Advantage™ Long Term Care Insurance by calling 20+ year LTCI industry veterans Ronald Hagelman (830-620-4066; Ron@rmgltci.com) and Barry Fisher (818-489-1839; Barry@rmgltci.com). Product is not available in all states. Limitations and exclusions apply. Underwritten by Loyal American Life Insurance Company®.
REAL ESTATE
How To Make Real Estate Work For A Young Family's Future Amy and Dan are in their mid-30s and for the last ten years have purchased two fixer upper houses in a resort area in the Northeast, hometown for both of them. Dan is a policeman and Amy stays at home with their daughters, ages 5 and 7. They are now living in their third home, worth $700,000. They came to a financial planner with questions about how best to manage the equity, about $600,000, that they have in their current residence.
Highly appreciated real estate provides flexibility for families, even young ones, when they understand their options: Here are a few options that Amy and Dan need to think about.
They could try to sell their big house, but in their home area, resort real estate is declining at the moment. With the proceeds (let's say $550,000) they could buy another fixer upper, (they are willing) but smaller house in the $350,000 range. (More houses in this range will become available as real estate prices decline in their resort area, but the sale price of their "big" house will decline as well. If they are going to sell the big house, they need to make that decision soon. )
With the remainder of $200,000, they could put a substantial amount down on a second fixer upper that they would rent. This would give Amy and Dan two properties in a declining market, one of which would provide rental income to pay the mortgage on that property. They could wait out the real estate cycle and if the market cooperates, they will have doubled their probability of both properties again appreciating in their area.
Or, they could sell their big house, put money down on another house spending a total of $350,000 to buy and fix it, and invest the remaining $200,000 in the market. They understand that the total stock market index has returned an average of over 10%for the past 20 years. An investment portfolio earning 7.2% will double every ten years, giving them a sizeable nest egg ($400,000) to spend on their daughters' education and they do have the time for the portfolio to grow.
Whatever Amy and Dan decide, the important takeaway from their story is that sweat equity works, real estate equity can work for them in several ways, and they are asking for professional help at a very young age, even though all they really have is one primary residence with a great deal of captured equity. Good for them for looking at all of their options.
Pearson Financial Services, Dennis, MA, is the author of "The Million Dollar Gift: Dynasty Trusts. Why Leave Your Assets Any Other Way", written for his clients, his clients’ families, and his own family. He offers a fully integrated wealth management process, incorporating investment, retirement, financial and estate planning specialists under one roof, serving clients as their family's office, designing and implementing strategies to protect and distribute their wealth and highly appreciated property. Seth Pearson, CFP, 800-385-7925, seth.pearson@verizon.net
BACK TO TOP |
