Errold F. Moody Jr.

Learning Annex Outline 2006

Never Buy Stocks From a Stockbroker

Never Buy Insurance From an Insurance Agent

Never Do Financial Planning with a Financial Planner

Overview- this is not a sophomoric "Rich Dad, Poor Dad" nor Suze Orman commentary. It is a far more intensive analysis of all areas of planning with specific review of investment and insurance "MISAPPLICATIONS" by the various industries who generally use you as a money pit.

The difference in this approach is the fact that I have done more instruction to more audiences in effectively all areas of personal finances- UC Berkeley courses for the CFPs; licensing courses for brokers; continuing education courses for insurance and planning entities as well as reports and testimony for court and arbitration purposes. Most of the material presented you will never see again in this context. It could save you or a loved one thousands of dollars You will have to pay attention throughout and take notes.

I will, obviously, delve into the comments above about the use of advisers. Suffice to say however- few have much knowledge nor training. For example, while marketing presents the Certified Financial Planner as the preeminent planning entity, the training reflects about one semester in Money. Hardly adequate for investigation in any area. Additionally, while I do not generally indicate I am a CFP, it is necessary that I point out that I am the only fully licensed and legal CFP in California that can offer fee services. Further, I also state that literally all the Broker Dealer firms representing financial planning services are illegal- certainly unethical- in California. So much for the fiduciary duty to customers. In the infamous words of Fox Mulder,

TRUST NO ONE

Class manners: Please turn all cell phones off (or just leave on vibration). If you need to answer a call, simply leave the room. You may ask questions as we go through the class though I may have to limit them due to class size and the complexity of the answer. I will stay after class for a short time if needed for additional questions.

Since this is an instructive class, I am using a white board almost exclusively. Please move to the front so you can see properly.

1. Licensing Overview

a. Series 7; insurance agents, CFPs, ChFC, MSFP, CPAs, attorneys ad infinitum

1. At least 50 "designations" currently and more every day. None is as extensive as the CFP- and you can take that exam in as little as six months. So don't expect much.

2. Continuing education is mandatory with most licenses- but generally are a rehash of old stuff.

3. Never buy stuff at a bank. You may not be guaranteed a ripoff but you are not going to get the best of products.

b. Experience An advisor with 20 years of experience may simply be taking one years' worth of experience and repeating it 20 times.

c. Why referrals are just plain wrong

d. If you want to avoid all the above and still have an 85%+ chance for success, then never give money to anyone (including yourself) who does not have (and can effectively use) a financial calculator. You are committing financial/economic suicide when you entrust money to someone who doesn't know how it works.

e. I realize that the above restrictions will not work for the bulk of consumers- certainly the elderly- since they do not deal with financial issues objectively.

f. The CAVEAT

1. Almost everything above has rarely been identified to the public by journalists- that includes the WSJ, New Times and so on. The fundamentals of investing have never been taught to brokers, CPAs, attorneys, arbitrators, and more. So while I have a caustic and cynical view to some of activity (or lack thereof) by consumers, some of it is understandable since no one else is providing the material for review. Marketing prevails- as long as someone or some entities can infer "trust", that is usually all it takes.

2. Truth or Fiction (and other stuff)

a. If you earn 8% on your money and have 30 years to live, you have a pretty good chance to have enough money for retirement.

b. Men are more thorough in their analysis of investments and therefore earn higher returns.

c. Arbitrations are shorter in time than court proceedings and less cumbersome. Cheaper too.

Arbitrators and securities attorneys are trained in the fundamentals of investing.

d. Medicare covers for most long term care. Long term care is now about $70,000 a year.

e. Dollar cost averaging is an effective way of investing.

f. The actuarial lifetime for males is now about age 76. For females, about age 80. If you are therefore a male age 65, you have 11 years to live.

g. Annuities are excellent choices in order to have enough money no mater how long you will live.

h. The NASD, SEC and DOI are guardians for the consumer.

i. Due to changes in tax law, most people will not have to be concerned with estate taxes.

j. Due to changes in tax law, most people will not have to be concerned with probate fees.

k. The most spurious tax is ________________

l. Computerized plans are the most efficient way to design retirement portfolios.

m. Ethics are required and enforced by the CFP Board of Standards.

n. The cheapest way to buy term insurance is through the Internet.

o. Buy and Hold is the best way of accumulating funds before and during retirement.

n. Rebalancing is an effective way of insulating risk.

o. The cheapest long term insurance is ___________________

p. The lifetime estate exemption for 2006 is ___________

3. Investments and Retirement Planning

a. Diversification- It is NOT the infantile "don't put all your eggs in one basket". How many stocks must you have in a portfolio in order to insulate it due to unsystematic risk? 10, 20, 30, 50, 100, 200, 300?

b. Risk is the key to the use of various allocations. It is based on current and proposed economic conditions, not on Morningstar commentary that is based on past results. The SEC comment that you cannot assume projections to the future is well founded, certainly in this Internet and computerized trading era.

c. Assume you need $60,000 annually during retirement. $20,000 will come from Social Security (if you are old enough). How much do you need in a retirement kitty in order to live out your lifetime.

d. Standard deviation (pay attention and I will make sense out of this) is NOT risk per se though it is implied by most planning reports. In fact, most planners are clueless to its inherent weaknesses.

Risk takes on many, many faces- interest rates, business, market, economic, bankruptcy. When one states it as such, it is almost always fraudulent. It is true that standard deviation goes down over time- what is usually described as "risk gets lower over time" and is great for long term investors. But it is the risk of LOSS that actually goes UP over time.

decisions are made by client. The advisor provides information, preferably in a written format, and validates the suggestions of purchase and sales.

Effectively no plans tell you that since, if they did, few people would invest. Having 50% or less of your monies reflects a risk much greater than most would accept. But because of the failure to provide the whole truth, the plan presentations are a direct fraud.

e. Rebalancing doesn't work if you have a severe bear market. It's not just the fact that money was left to continually lose. It is the fact that, if one rebalanced a portfolio to maintain a specific risk profile, then more money was introduced into the market while the world fell apart.

Let's review a portfolio of 70% stocks and 30% bonds starting in 2000. The 70% of equities might have half of that in large cap funds, 20% in small cap, 15% in whatever. The same with the bond section. But I will just use the S&P 500 for the equities.

Let's assume there was $100,000 total in the portfolio at the beginning of 2000 with $70,000 in equities. At the end of 2000, stocks were down 9.1%. So the equity side dropped $6,370. I'll assume the bond side stayed stable. The essence was that the equity side was now too LOW and you would have to BUY another $6,370 of stocks/funds to get back up to the 70/30 split. So now what happens in 2001? The S&P loses another 12%- and as should be obvious, so does the inclusion of the new $6,370. Now the equity side is now down by $8,400. Since you are using the standard rebalancing format, you have to buy $8,400 more stock/funds to build yourself up again. Now go through 2002. The S&P dropped another 22% and your $70,000 is now down another $15,400. You go out and buy another $15,400 of stock/funds to get back to the position of equity and risk that your adviser had indicated was necessary or appropriate for your financial situation. Does this make any rational sense? Why would anyone put more money into an inherently bad economy? Simple. They had been led to believe that the best allocation was one that stayed the course (no change) or to rebalance (normally) at the end of one year. But it should be perfectly clear- if you do so in an economy that is tanking- your risk of loss gets greater since your are committing funds at the worst possible time. We are in a new period where growth will be much lower (Buffet, Munger).

f. Yield Curve

1. Standard, Flat and Inverted Yield curve analysis can save consumers thousands. Learn these- they can save you thousands

g. DCA- Dollar Cost Averaging Down

1. If you run into a bear market, sell your most risky asset first. (Don't confuse with a simple correction which is a 10% to 15% structural loss in the market.) Retirees could never lose more than 10% to 15% of their portfolio in 2000- 2002. The total market equity loss for three years was 45%.. The overall comment by planners was to "stay the course". Here is "stay the course" in 1973/74.

Assume $125,000 with $12,500 removed annually and a 4% inflation factor.

Year S&P 500 Loss Total Addition (Reduction) Remaining

1973 -17.37 (-19,541) ($32,041) 92,959

1974 -29.72 (23,763) ($36,763) 56,196

1975 31.55 13,464 -55.72 56,140

1976 19.17 8,066 (5,993) 50,146

1977 -11.50 (-4,085) (18,707) 31,438

1978 1.06 172 (15,034) 16,404

1979 12.31 73 (15,741) 662

1980 25.77 No Money Left --------------- ----------------

1981 -9.73 No money left ------------------ --------------

2. Here is "stay the course" for 2000- 2002.

Assume $125,000 with $12,500 removed annually and a 4% inflation factor.

Year S&P 500 Withdrawal Total Addition (Reduction) Remaining

2000 -9.1% (12,500) ($23,750) 101,250

2001 -12 (13,000) ($24,150) 77,100

2002 -22 (13,520) (30,212) 46,888

When you are this far down at the end of 2002, you simply are out of luck as a retiree. A retiree would need a gain of almost 30% just to break even with the following year's inflated withdrawal. Not gonna happen. Is it any consolation that your adviser says that "I told you this could have happened?" Here is what Charles Schwab said in November 2005- "if you had been in a properly diversified portfolio, you would have almost been back to the value you had in 2000." What a waste of air.

3. Will this happen again? Absolutely. And if you happen to be a retiree, what will you do then? You have just seen why buy and hold does not work in reality. It is not the commentary that "the market will always come back". It is whether your money will ever come back. If the losses occur at the "wrong" time, you will not have enough money to live out your lifetime. Period.

Now pundits will say that it is impossible to know when the economy is bad. I'll admit that it is not easy, that it takes a lot of reading, that it requires a background greater than some simplistic designation- certainly far more than the nil insight by brokers, that you have to read material from the FED and so on. So be it- some things are simply hard to do. But the economic mess starting in March 2000 was obvious. The additional loss in November and December 2000 made the economic conditions more pronounced. One could not dismiss the calamity.

h. Monte Carlo Analysis

1. It does little benefit to tell an investor- who has lost 40%, 50%, 60% or more- that the statistics were correct in that the market could have substantial losses.

i. Fees

a. I do not dismiss the element of paying a fee for advice. Generally- though not always- it is preferable to a commissionable offering. But paying a fee to a twit is still nonsensical. Further, once the fees exceed 1%, you are not getting a viable service. And if you get nothing more than "asset management", you are probably getting screwed. I will offer this commentary from Bill Jahnke, "Asset allocators view their primarily job as getting a client into an asset allocation solution and advising the client not to abandon the asset allocation solution in volatile markets. But if the fixed asset allocation solution is not right for the client and is inflexible in the face of changing economic opportunities, what is the service worth?

Asset allocators claim their advice is designed to benefit the client. But it appears that the advice is really designed to benefit the advisor; the investment process is simplified, and the business risk associated with managing the client's asset allocation is minimized. The asset allocator only needs to provide a package of marketing materials, educate the client on the rewards of diversification, administer the risk tolerance questionnaire, set up a "normal" asset allocation policy, collect the quarterly fee, and advise the client to "stay the course" in volatile markets."

I know of some advisors and brokerage firms that charge up to 3%. Ludicrous, certainly in times of lower expected returns for several years. Also even more ludicrous when attached to bond funds.

Fees generally go down the more money you have- say breakpoints at $500,000 or a $1,000,000. But money management is only a small part of a person's life. And you are almost always paying for a computer portfolio, not something individual. Preferable to get full planning services- insurance review, disability, long term care, college funding, real estate and more.

j. Wealth Management: Just a marketing misnomer for financial planning- which most planners cannot or don't do (mainly computerized asset allocation for a fee). At extreme levels for businesses needing specialized loans, some aspects are viable. Otherwise comprehensive financial planning is the component needed.

Some state that a planner is simply the hub around which the other specialists "twirl". Like a physician acting as a gatekeeper. Unfortunately that is an analogy that is just plain wrong. If you use a Series 7 licensee- even a CFP- you are not getting advanced knowledge. So, why bother? You really need to remember that most of the planners and literally all of the brokers have never been taught the fundamentals of investing.

. k. Other economic issues- too many to name

a. There is no single factor that directly states that the market/economy will fall precipitously. I have mentioned a few but you can include productivity, Consumer sentiment, factory utilization, and on and on. It simply is necessary to review all and try to put a consensus. Does that mean one is always correct? Of course not. But once again I quote Bill Jahnke, "The view that there is nothing to be gained by an ongoing evaluation of investment opportunities and the positioning of client portfolios in response to those opportunities is extreme and dangerous. The fact that assessing further prospects is difficult and subject to error is no defense for not doing it. Given that most allocated investment solutions are poor interpretations of investment theory and have little to do with meeting financial objectives, the advice to "stay the course" is especially hollow."

l. 401(k), 403(b)7 IRA's and similar pension/retirement plans

a. The above criteria fits all investment and retirement focus. Admittedly the younger you are, the more apt you are to get back to even after many years. But, I submit, losing almost half of your money, no matter the age, is an experience that is best allocated to your worst enemy.

m. Taxes

a. I do admit that if you are in a taxable account that the sale of appreciated assets will cause a taxable event. Obviously, one needs to be very competent and selective in establishing when a major downturn is occurring (but nobody could have missed an inverted yield curve in 2000 with a stick). But think about this- was it better to pay a 15% capital gains tax on the appreciation or to lose 45% of your money. (No financial calculator needed here.)

n. Discretionary versus non discretionary accounts

a. Though no statistics exist, I think that 95% of all portfolios are done on a discretionary basis. That's where the consumer gives discretion to the broker to trade as he/she deems fit. A quarterly statement is sent with fees subtracted. And the broker/planner arranges a once a year review.

b. Non discretionary accounts do not allow the broker or planner to do anything unilaterally. All

4. Budget

a. One of the more grueling exercises in your lifetime. Many planners do not require a formal budget or are willing to accept a "percentage" of income. I do not feel that is adequate at all- save for people who have LOTS of money. That said, Burt Reynolds filed bankruptcy years ago so nobody should be exempt from the effort. It is necessary for the planner since he needs to know what you are doing with your money. It is nigh on to impossible to plan how to invest if there is no idea how much is being spent.

For the most extensive budget anywhere, buy No Nonsense Finance or go to my Web site www.efmoody.com. Here is an example of what is included- a line item for pets. "Almost $12,000 over a lifetime for a small dog that lives 15 years, and more than $23,000 for a larger breed that lives for 12. Those are just averages; the numbers grow quickly if, say, illnesses require trips to the vet." Parking tickets, water wells, snow removal. If you miss these items by using a simplistic percentage, your retirement could be in jeopardy.

5. Insurance and Annuities

a. Never use an insurance agent to buy insurance. But you will always need an agent. Sounds completely wrong but the point is that an agent, per se, is never taught anything of real life value in licensing training. Further, since the mid 80's, insurance companies have pretty much eliminated any independent instruction for agents. At least get a CLU- preferably a ChFC. Be careful of CFPs- their insurance background is very minimal. And get at least 10 years experience. If you want to use your brother in law who just got his license, never complain about what you got. Also, I repeat and repeat, never use anyone who cannot use a financial calculator. It is mandatory for insurance and annuities. .

b. Term insurance

1. Once in awhile you can get a policy on the Internet but you better be "perfect". Otherwise imperfect health causes the prices to rise substantially and you might be steered to another product that is not the best. Within the same context, the same thing can happen with an agent- but that is why you don't use an agent

2. If you are rated, expect to pay a lot more for insurance, no matter the type. However, almost anyone can be covered for almost anything. The "trick" is to pick the companies that follow certain problems- say recovering alcoholics, diabetes, etc.- and to check with the underwriter before the policy is submitted. Another issue- don't lie and try to hide a problem. The MIB maintains documentation on about 15% of the U.S. populace and previous denials are on file.

3. Most can get a 10, 20 or 30 year level term policy (variations due to age and company) - meaning that the rate will not change for the entire period. Be careful- some say 30 year level but will only guarantee the first, say, 10 years.

c. Whole and Universal Life

1. The basics of these policies is an additional funding beyond insurance costs so that you will build up a kitty for use later in life. However, I have always felt that if you need insurance- certainly for the long period of time- just buy insurance. And that means No Lapse.

A. No lapse is a universal policy that guarantees coverage up to age 130 (I'll pass, thank up). Requires competent analysis because of some underlying issues. No matter, there have been several companies that offer similar policies since the 1980's. The internal buildup is moot- you only care about insurance coverage. Additionally they are CHEAPER than the standard policies- including the No Loads. Don't be swayed by a planner suggesting you go directly to Ameritas of the like They cost MORE. Admittedly these other policies pay a commission- but don't you think the salaries at the no load companies are an inducement to get you to buy? If they don't get you to buy, they won't have a job.

2. If you buy the regular policies, make sure you understand the illustrations (not a chance)

d.. Variable Life Insurance

1. Oy! I do not like a mutual fund inside a policy. You are trying to do two things- and generally the inside buildup becomes a problem. Want proof? Anytime a variable policy is sold (includes annuities), the idea is to change the internal investments to reflect better opportunities as well as not be impacted by any taxes on appreciation. So simply look at 2000- 2002. If you or your adviser did not go to cash or bonds and avoid the onslaught of losses, then you don't know how to reflect economics and the market and you just paid dearly for this policy and the money is going down the drain. Further, the illustrations are deceptive at best. You need a Monte Carlo analysis. Per one consultant, "For a client who had bought a level-death-benefit variable life with an illustrated target premium, we found the probabilities of policy failure were 20 percent, 35 percent, and 48 percent based on average equity fixed-account yields of 12 percent, 10 percent, and 8 percent respectively."

And here is a real fraud. Variable life inside an Irrevocable Life Insurance Trust. The idea is to build up a kitty in these policies in order to take the money OUT. The question is, how do you get it out of an ILIT without violating the trust agreement and having the policy included in the estate? Outright fraud. And it is happening all the time.

e. Annuities

1. They are far from the simplistic "investment" many believe them to be. And to make sure you understand the implications, I repeat and repeat- you must use a financial calculator to determine the returns.

2. A fixed annuity can be a misnomer. In correct terms, you buy a policy that guarantees a return for the committed time. For example, a five percent, six year annuity guarantees five percent each and every year- then at the end of the period, you can go on your merry way. In other cases, a fixed annuity may guarantee the first year only- then you are at the mercy of the company for the rest of the period. I don't like those. Fixed annuities can work when interest rates are at their peak- which may be soon. But you have to consider surrender penalties and tough taxes when money is pulled out. But if you already have an IRA, 401(b) etc. where your fixed position is underperforming, they can be a consideration.

3. Variable annuities- generally a big no-no. If you "buy" one of these from an agent, you are generally incurring some massive fees (2.5%+ annually) that will destroy your total returns- certainly during periods of lower returns. Of course, agents talk about the non taxable appreciation. In theory, it is possible. But I then point again to 2000- 2002. If you or your adviser made the proper adjustments to avoid the huge losses, the ability to select high earners might be possible. But I have not heard of anyone doing that.

The SEC et al has (finally) set stringent requirements for the use of variable products to the elderly. Actually, few should use these. If necessary, use Vanguard. Or if you have a bad one already consider a 1035 exchange..

4. Annuity Payouts- I repeat and repeat, the agent must have use of a financial calculator since it may be the only way you can ever figure out what the actual return is (the WSJ did it wrong just last year). While it is true one can get a guaranteed payment for life, if you are only going to get a 2% or 3% return, why bother. Some companies offer new enhancements, but the costs can approach 3%. That's too much for the guarantees. Also, once you put money in, you cannot get money back out for any reason. Some companies do allow- but the additional costs for the ability is too often prohibitive. Lastly, annuities do not offer inflation increases so the longer the payments occur, the less the real value.

The true analysis needed is to figure out whether one will have enough money for lifetime based on the budget and inflation. If it is insufficient, then growth positions are needed- not non inflated returns. However, if the equities are not managed for the periods of losses, that may not work either. Or in other words, there is apt to be a major economic upheaval when the elderly keep living longer and simply run out of money. That's the scenario now with Medicaid.

e. Life Insurance and Annuity Review

1. If you already own a permanent type policy, and particularly if it is variable- it is absolutely mandatory that it be reviewed annually. It Many of the initial illustrations were developed on a 12% flat return- which has never happened. Statistically, they will not last. Standard universal policies that were sold years ago under higher interest rate projections may already be well under water. And any trust owned policies require the fiduciary to review at least annually.

2. It will be necessary to get in force illustrations and analyze. For variable policies, a monte carlo review is be required. You may request your agent to review, but if the background was not valid before, don't bother asking them now. Do not expect the company to analyze. I tend to find these customer service people to be very limited in capability. All that said, you still need a licensed individual with at least 10 years of experience. They have to know what is out there and how the policies work. An attorney or CPA is clueless. IN California, seek out a Life and Disability Insurance Analyst. They are the only ones who can charge a fee for insurance advice.

f. 1035 Exchange

1. If a policy is underperforming, etc. it might be viable to move to something better. You can transfer existing funds from one carrier to another without tax by doing an internal exchange under tax code 1035. It may take "forever" to get it done- many current companies delay, delay and delay the transfer and put up all sorts of tacky roadblocks in the hopes of keeping the money under their control. I have even found it necessary to write the Department of Insurance for help.

g. Viatical and Life Settlements

1. Viatical settlements started in the early 90's as a method for seriously ill people (AIDS primarily) to sell their life policies while alive in order to pay bills. Lots of fraud, minimal sales prices, etc but when done properly, the owner did receive needed monies. Of course, the previous beneficiaries became disinherited since the policy was sold and that becomes an issue. However, the main focus on AIDs patients changed radically as protease inhibitors allowed longer lives.

2. Life Settlements are the sale of policies that are now unneeded or unwanted. Generally, the seller needs to be over 70 and/or in poor health. Please, please understand the issue of advanced age since frauds are being perpetrated on the public by getting them to sign up for policies (itself a fraud) with the intent of selling them after the two year incontestability period. Once again it is necessary to determine if some other method might work- loans by the beneficiaries, reduced insurance from the company to make it affordable and so on. But there are direct examples where a sale of an unneeded policy is hundreds of times better than simply terminating the policy outright. Can also be used by companies that have carried key man insurance that may no longer be needed. Licenses in some states are required.

Do NOT simply take a singular offer. A formal proposal for sale should be submitted to several firms for "shopping".

6. Estate Planning

a. A will is mandatory- a trust may be preferable. Why? Because in California, probate can incur significant costs even though your estate tax is zilch. (Think about the value of your house). In fact, most middle income people are NOT going to be impacted by estate taxes. Admittedly the tax laws change in 2010, but I have stated that the rules will be changed so that one can leave around $2,000,000 to $3,000,000 upon death. Double that for married couples. Current exemption is $2,000,000 per person.

b. A living trust is a relatively simple tool to allow you to disperse assets as you desire upon death and take advantage of existing tax laws. But I have always seen these as a great management tool for establishing what needs to be done if something goes wrong while you are living- disability, Alzheimers, death of a spouse, etc.

c. A key element is the added forms such as physician directive. These indicate what you want done when disabled or dying. But picking a loved one to "pull the plug" on you may not work because they will be too emotionally involved.

d. Trustees

1. The selection of subsequent trustees is critical. If you die, who will be the guardians of your children (these are always specified in a will). They may be different than the trustees taking care of your money (properly raising a child and properly managing money have NO correlation to each other).

2. A corporate trustee will not "die" as might a person you select to act. But a corporate trustee can change hands as well. Spend some time thinking about this before simply making a selection without homework

7. Long Term Care

a. Medicare does NOT cover long term care. Medicaid does if you are effectively "indigent". For those in the know, you can use various methods to "look" poor, but if you have money, use it for your care. Further, while the appearance of equal care between private and Medicaid patients may not be obvious, there are areas of differences that I have gleaned through teaching this subject for over 6 years. And the ability to "look" poor is becoming a lot more difficult and illegal.

b. Private policies have gone through massive amounts of changes during the last 4 years. Lots of consolidation, many firms increasing premiums, changes in underwriting standards and much, much more. I do not have a particular company I can suggest as of this seminar. Fees depend on age and coverage. Coverage starts when 2 ADLs are impacted- eating, bathing, dressing, continence, toileting and transferring or with signs of senile dementia.

c. Assisted Living is now the main focus of care, not nursing home. It is about 33% to 50% cheaper than nursing home care which is now about $70,000+ depending on area. Within this context is where you might retire and the assumption that you will need care. Mend need shorter periods of coverage- 2 years might be adequate while women might look at 4 years.

d. Caregiving is the critical item to long term care. It is generally left to women to be the caregivers and it can become financial, emotionally and physically taxing. Husbands should consider coverage on themselves so that wife will not become overly burdened by care.

e. Alzheimers and senile dementia

1. The costs for long term care rarely address the additional commitment to those with mental impairment. Such individuals start to require constant monitoring in all facets of living. An attendant is needed to help them eat at every meal, stop them from wandering and more. As a personal comment, my uncle died of Alzheimers (actually it is a fortuitous disease that intercedes), my mother has been institutionalized for 9 years (normally, the time till death averages 7 years), a friend got early Alzheimers at age 51 and I now have another elderly friend who no longer can remember much of anything in a conversation. But her daughters are in denial and are leaving her to fend for herself. And she still drives (I may call to get it denied. She will end up hurting others.)

8. Real Estate

a. Look to the yield curve to figure out when the (unacceptable) appreciation will cease- at least slow down. The changes won't be the same the Dotcom debacle, but prices have to stabilize.

b. Due to time constraints, I cannot provide the method to analyze real estate holdings. But the form is called the Comparative Investment Analysis and is located in the book. It is a relatively straight forward method- though it requires objective numbers for appreciation and inflation. It also requires the use of a financial calculator. However the analysis will offer some valid positions for real estate and as compared to most other types of investments.

9. Behavioral Finance/Economics

a. This is a focus on how people relate to money, finance, investments and the like. As I have stated repeatedly, there is no emotion to investing. It's just hard work. But it is not practiced that way since humans project emotion into almost everything. Cognitive dissonance causes people to rationalize actions that differ from their own preferences. Conformity, on the other hand, causes people to change their behavior as a result of pressure from others.

b. Recency bias: People tend to focus too much on what has happened recently. "That is true in terms of unfavorable, unsettling negative events, but it's also true for positive events

Anchoring: Investors become married to certain reference points that influence their decisions. For instance, an investor buys a stock at $50, and it falls to $40 because the fundamentals have changed. The best thing to do might be to sell at $40. However, many people are prone to wait for the price to recover to the $50 they're anchored against.

Loss Aversion: Investors are reluctant to realize losses, and conversely, investors are inclined to sell (sometimes too early) because they want that positive reinforcement that comes from securing a gain. "People have a tendency to hold on to their losers and sell their winners.

Mental Accounting: The idea that we treat money differently based on the source or where we hold it. "It's incredible how people will treat tax-return money as lottery winnings or found money, though its true nature is really from wages or salary earned."