Master Financial Education
Daily Commentary 2015
E. F. Moody Jr.


I have asked EF Moody to provide a brief example of what he has actually found on behalf of a client who engaged his services to review the insurance contracts which funded the client's estate plan. You will be amazed. In my 30 years in the business, I have never seen an authoritative, objective, prudent expert speak so clearly on the use of insurance. What Errold can do is unique in the industry.

Steven Winks

Secretary of State John Kerry - In America,  "you have a right to be (as) stupid (as) you want to be."
(But too many Americans are abusing the privilege)

Why did our systems fail and why will they continue to do so?  From Paul Volcker

"our economics are based on “an unjustified faith in rational expectations, market efficiencies and the techniques of modern finance"

You must not believe everything you think

Stephan Thomas Vitas

You are entitled to your own opinion. You are not entitled to your own facts.

Kevin Kind

Words  are chosen in order to influence us as manipulable objects, not to inform us as autonomous subjects.

Stephen Colbert

language intentionally designed to influence rather than inform is now ubiquitous in the business of sports and politics and markets
 Why? Because it works.

Ben Hunt

Be careful who you call your friends. I'd rather have four quarters than one hundred pennies.
 Al Capone

There is no sense in being precise when you do not know what you are talking about

        John von Neumann

There are decades where nothing happens; and there are weeks where decades happen.


Great spirits have always encountered violent opposition from mediocre minds 

Albert Einstein


Uniform (Im)Prudent Investor Act- Waaaaaaaaaaaaaaaaaay Out of Date

World Clock by

 I now have contracted with one of the major professional (non industry) associations in the U.S. to provide videos on a host of financial issues to their members

9/1: Scalable and non Scalable careers

Professions where you are paid by the hour are not scalable. A prostitute who charges $100 an hour only has 24 hours in a day. At some point, she will hit a ceiling on her earnings. Similarly, dentists, lawyers, contractors, bakers, and consultants can see only so many clients at a time.

By contrast, scalable professions allow you to make more money without an equivalent increase in labor / time. An author writes a book one time and his effort is the (basically) the same whether he sells 500 or 500,000 copies. A Hollywood actress need not show up at every screening of her movie to make money off it.

Career experts generally favor scalable professions.

Nassim Taleb, in The Black Swan: The Impact of the Highly Improbable, offers the opposite advice: pick a profession that is not scalable.

A scalable profession is good only if you are successful; they are more competitive, produce monstrous inequalities, and are far more random with huge disparities between efforts and rewards — a few can take a large share of the pie, leaving others out entirely at no fault of their own.

One category of profession is driven by the mediocre, the average, and the middle-of-the-road. In it, the mediocre is collectively consequential. The other has either giants or dwarves — more precisely, a very small number of giants and a huge number of dwarves.

9/1:  A BANK Flight Simulator for Financial Risk' Commercial use only

9/1: 401 advice

Sixty-seven percent of respondents said they would like personalized investment advice for their 401(k) plan, according to Charles Schwab’s 2015 401(k) participant study. However, only 12% indicated they currently get this type of professional advice in managing their retirement assets.

Survey participants indicated that such advice would dramatically increase their confidence in making the correct investment decisions.

On their own, only 44% of the total indicated they were “extremely/very” confident in their ability to make the correct decisions. With the help of a financial professional, that figure increased to 73%.

EFM-When you review the above, what would be your comments on bonds and target funds. (Let's be careful out there!!!)

9/1: Bank risk radar   commercial use only:

8/1: Women vs. men prepaerdness
Nearly half of women (49%) say their ability to make mortgage payments, save for college tuition and pay bills would be adversely affected by the death of their spouse, compared to just 37% of men, . Women are also less likely to know the terms of their spouse’s life insurance policy (57% versus 69% of men) and less likely to find family financial documents in an emergency (32% versus 21% of men), the study of 2,000 married adults found.

those who do carry life insurance often don’t have enough, . Nearly half (47%) of insured respondents in a survey of 1,000 adults carry coverage of $100,000 or less and, of them, more than 1 in 5 have a benefit amount of $25,000 or less. Only 2% of those surveyed had $1 million or more in life insurance. Nearly half of all adults — married or single — have insufficient coverage to address the financial needs of their families,

9/1: Did not expect the number to be so high

According to an article by CNBC, as of 2014, there are roughly 11,000 total hedge funds in the U.S. – their assets combining to a whopping $2.6 trillion.  To put that in perspective, the US national debt is 16 trillion

  1. Behavioral ethics: how psychology influenced economics and how economics might inform psychology?




Bernd Irlenbusch (Corporate Development and Business Ethics - University of Cologne) ; Marie Claire Villeval (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - CNRS, Université de Lyon)

This review surveys recent research developed in behavioral economics on the determinants of unethical behavior. Most recent progress has been made in three directions: the understanding of the importance of moral norms in individual decision-making, the conflicting role of opportunities provided by asymmetries of information and social preferences, and the crucial effect of rules, occupational norms and incentive schemes in the diffusion of dishonesty. The connection between economics and psychology is the most vivid on the first dimension.


  1. Do People Disinvest Optimally?




John D Hey ; Konstantina Mari

The disinvestment decision is of importance in many contexts: if funds are tied up for too long in a poorly-performing project, then opportunities for re-investment may be missed. Optimal disinvestment theory is a component of real options theory, but is relatively ignored by experimentalists. Two recent papers conclude that decision-makers stay in projects longer than that prescribed by the optimal behaviour of a risk-neutral agent. This departure is explained through riskaversion, but without a formal hypothesis under test. We report here on an experiment which explains the behaviour of the subjects through an estimationof risk-aversion. We also explore an alternative hypothesis – that subjects are myopic. Our results show that few subjects appear to be risk-neutral, many seem to be risk-averse but few are myopic.


disinvestment, experiments, myopia, real options, risk-aversion, rolling horizon


C9 G02


8/31: Risk parity

, if you invest $10 in the S&P 500 and $10 in bonds, the “portfolio risk” is dominated by equities because stocks are riskier and more volatile than bonds. If you invest $5 in the S&P and $15 in bonds, the portfolio is much more balanced and less prone to sharp movements, but the returns will be much lower. If you invest $5 in equities and $15 in bonds but add a bit of leverage to the fixed income component the portfolio should have the same return as a stock-dominated one — but crucially with less risk.

In theory, when stock markets are climbing the extra leverage will ensure that the bond portfolio does not weigh on returns, and when markets are jittery the leveraged bond bets will counteract a stock slide. When the volatility of one asset class shoots up, some managers adjust the allocations in response. Inflation-linked bonds and commodity contracts are sometimes added as protection against inflation and to further diversity the portfolio.

8/31: What the wealthy expected as returns

the average respondent expected an annual portfolio return of nearly 16%

EFM- apparently they are also stupid. The survey  included 275 individuals with an average wealth of $18 million but they are devoid of common sense. But in this economy , nothing has to make sense

  1. Gender Interaction in Teams: Experimental Evidence on Performance and Punishment Behavior




Seeun Jung (ESSEC Business School - Essec Business School, PSE - Paris-Jourdan Sciences Economiques - CNRS - Institut national de la recherche agronomique (INRA) - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics) ; Radu Vranceanu (Economics Department - Essec Business School)

This paper reports results from a real-eort experiment in which men and women are paired to form a two-member team and asked to execute a real-effort task. Each participant receives an equal share of the team's output. Workers who perform better than their partner can punish him/her by imposing a fine. We manipulate the teams' gender composition (man-man, man-woman, and woman-woman) to analyze whether an individual's performance and sanctioning behavior depends on his/her gender and the gender interaction within the team. The data show that, on average, men perform slightly better than women. A man's performance will deteriorate when paired with a woman, while a woman's performance will improve when paired with a woman. When underperforming, women are sanctioned more often and more heavily than men; if sanctioned, men tend to improve their performance, while women's performance does not change.


8/30: Right to die

Cederquist says the most common reason for requesting assistance in dying is not “intolerable physical suffering.” Rather, it is “existential suffering,” including “loss of meaning,” as from the ability to relate to others. The prospect of being “unable to interact” can be as intolerable as physical suffering and cannot be alleviated by hospice or other palliative care.

Almost 30 percent of Medicare expenditures are for patients in the last six months of life and about 16 percent of patients die in, or soon after leaving, intensive care units.

8/30: Why you shouldn't trust most financial  research

8/30: Bleak retirement:

According to the 16th Annual Transamerica Retirement Survey, which surveyed 4,550 workers over the age of 18 this past winter, of those who said they were negatively impacted by the Great Recession, just 20% have fully recovered financially.

In addition, 80% of respondents of all ages (including 85% of Baby Boomers) believe their generation will have a harder time achieving financial security than their parents did. The study also found that more than a quarter of Americans expect to rely solely on Social Security for their retirement income, and another 13% expect to never stop working, which is in line with similar studies conducted this year.


high-frequency trading strategies — has expanded so rapidly that these are now estimated by the Securities and Exchange Commission to represent more than half of all US stock trades, and a big chunk of other asset markets

Orders are being executed at lightning speeds in huge volumes. But there is another, often overlooked implication: these machines are being programmed to link numerous market segments together into trading strategies. So when computer programs cannot buy or sell assets in one segment of the market, they will rush into another, hunting for liquidity.

Since their algorithms are often similar (or created by computer scientists with the same training) this pattern tends to create a “herding” effect. If a circuit breaks in one market segment, it can ripple across the system faster than the human mind can process. This is a world prone to computer stampedes.

But the bad news is that when these computer stampedes do occur, small players and retail investors tend to suffer most. We do not yet know precisely who lost and gained most this week. But Douglas Cifu, head of Virtu, the world’s largest high-frequency trader, has revealed that Monday was one of the most lucrative days his firm has ever seen; other high-frequency traders have echoed this. Conversely, many of the investors who were trying to sell exchange traded funds at tumbling prices via their brokers on Monday were almost certainly retail players.

8/30: Aging and investments

As people age, they become more focused on maximizing positive emotions and social interactions—and more determined to block out negative experiences. This process, which experts call socioemotional selectivity, leads older people—including the affluent—to pay more attention to those who make them feel content and comfortable. At the same time, they are more likely to neglect warning signs that might have been obvious at a younger age.

Some recent research has shown that highly intelligent retirees—even those with no signs of dementia—find it harder to distinguish safe investments from risky ones. Compared with younger investors, those over the age of 65 “showed striking and costly inconsistencies” in their financial behavior, according to a study of 135 subjects led by Ifat Levy, a neuroscientist at Yale University who has conducted experiments on this topic. For example, older investors tend to make simple errors that younger investors avoid—and such problems only worsen with dementia. Those individuals who are elderly—but still mentally fit—maintain a healthy sense of caution when confronted with a complex or risky investment. But someone who has long made sensible financial decisions and is now declining cognitively is likely to remain self-confident “even if he has lost his reasoning capacity,

What’s more, new research on mental health and aging also shows that people in their 40s and 50s have little insight into the trajectory of their future decline. In other words, just when they are the most capable of planning ahead for a time when their judgment might fail, investors are at an age when they’re unlikely to believe that they actually need to plan ahead.

8/30: Alzheimers

The World Alzheimer Report, published by Alzheimer’s Disease International and King’s College London, says the number of people affected by dementia has increased quickly from the 35 million estimated in 2009, and researchers warn that number could double in the next 20 years.

8/30 A full article on risk- though they define it as standard deviation/volatility  It isn't- but you gotta read this. 

High Risk, High Returns? Not Quite

I am so excited
8/30: Survey: Few 401(k) participants receive customized advice
A desire by 401(k) participants for retirement-planning help might represent a growth opportunity for financial advisers. A Charles Schwab survey says 67% of 401(k) participants want tailored investment advice, but only 12% are getting it. "There's definitely a large disconnect,"

8/30: Better economics??

In the 60 years between 1947 and 2007 annual real household consumption grew by 3.6 per cent, on average. Since 2008 it has been closer to 1.5 per cent. Even if you exclude the recession, the average is still only 2.3 per cent.
The obvious culprit is stagnant wage growth. While this predated the recession, by now most would have expected some improvement, given the pick-up in job creation. There are anecdotal signs of a pick-up, but the outlook for wage inflation remains mixed.

8/30: Live sicker and longer

General health has improved worldwide, thanks to significant progress against infectious diseases such as HIV/AIDS and malaria in the past decade and gains in fighting maternal and child illnesses.

But healthy life expectancy has not increased as much, so people are living more years with illness and disability

global life expectancy at birth for both sexes rose by 6.2 years -- from 65.3 in 1990 to 71.5 in 2013. Healthy life expectancy at birth rose by 5.4 years -- from 56.9 in 1990 to 62.3 in 2013.

Healthy life expectancy takes into account both mortality and the impact of non-fatal conditions and chronic illnesses like heart and lung diseases, diabetes and serious injuries. Those detract from quality of life and impose heavy cost and resources burdens

8/30: Business schools unwilling to adapt- perfect article by FT

Any serious reflection about change in business schools must acknowledge that they are embedded in a large, complex ecosystem where forces of inertia have, so far, outweighed forces of deep change. To break from the pack, to stop running in place, exposes bold innovators to the risk of losing legitimacy and revenue. Breaking from the pack requires vision, courage and a huge appetite for risk, a troika that is extremely rare.


Four women graduate today for every three men. How did the college gender gap get so extreme?

The last year in the U.S. that more men than women graduated from college was 1981. Since then, the college gender gap has been getting wider every year. In 2012, there were 34 percent more women than men who graduated from college. By 2023, that gap is expected to reach 47 percent.


Just info



Retirement income ranks second to health insurance as the most sought after benefit. Those income needs are particularly important for highly compensated employees. An executive bonus plan can be the platform to help meet those needs. Create a non-qualified plan that is tax deductible to employers, is easy to administer, and fills the key person's retirement gap.


The Accumulation Phase

1.     Bonus from employer to key employee can be tax-deductible, subject to reasonable compensation restrictions.

2.     Bonus dollars fund an asset e.g. a life insurance policy. Key employee is taxed on the bonus as ordinary income.

The Distribution Phase

3.     Upon distribution, the key employee uses the financial asset values to supplement retirement income or provide survivor benefits.


  Benefits and Considerations

 For the Employer

 For the Employee

  • Recruit, reward, and retain key employees
  • Business receives tax deduction
  • Exempt from ERISA requirements
  • Bonuses reduces cash flow
  • Overcomes retirement funding limitations
  • Receives retirement and survivor benefits
  • Employee owns the asset
  • Minimal tax costs associated with the bonus


8/30: Recent market volatility – in emerging and developed economies alike – is showing once again how badly ratings agencies and investors can err in assessing countries’ economic and financial vulnerabilities. Ratings agencies wait too long to spot risks and downgrade countries, while investors behave like herds, often ignoring the build-up of risk for too long, before shifting gears abruptly and causing exaggerated market swings.   

Given the nature of market turmoil, an early-warning system for financial tsunamis may be difficult to create; but the world needs one today more than ever. Few people foresaw the subprime crisis of 2008, the risk of default in the eurozone, or the current turbulence in financial markets worldwide. Fingers have been pointed at politicians, banks, and supranational institutions. But ratings agencies and analysts who misjudged the repayment ability of debtors – including governments – have gotten off too lightly.
In principle, credit ratings are based on statistical models of past defaults; in practice, however, with few national defaults having actually occurred, sovereign ratings are often a subjective affair. Analysts at ratings agencies follow developments in the country for which they are responsible and, when necessary, travel there to review the situation

8/30: Financial Education Is Not Enough: Millennials May Need Financial Capability for Healthy Financial Behaviors
Using data from the National Financial Capability Study, researchers from the University of Kansas examine the role of financial education and having a savings account in millennials' financial behaviors. The paper reports that those who have had both—financial education and a savings account—are 176 percent more likely to afford an unexpected expense, 224 percent more likely to save for emergencies and 30 percent less likely to carry too much debt compared to millennials who have had neither. This issue brief (PDF 881 KB) and infographic (PDF 609 KB) summarize key findings.

8/26: Dementia- there is NO way society can pay for this cost. I have no idea, outside of a cure- that many of these people will end up in less than acceptable  conditions.

Health researchers say there are now nearly 47 million people living with dementia globally, up from 35 million in 2009. They warned that without a medical breakthrough, numbers will likely double every 20 years.

In a report issued on Tuesday, researchers from Alzheimer’s Disease International say about 58 percent of all people with dementia live in developing countries and that by 2050, nearly half of all those with the disease will live in Asia.

 The high cost of the disease will challenge health systems to deal with the predicted future increase of cases. The costs are estimated at US$ 604 billion per year at present and are set to increase even more quickly than the prevalence.

China cuts benchmark interest rates
From the official statement made by the People's Bank of China on Tuesday:
The benchmark one year lending rate has been cut 25 bps to 4.6 per cent with immediate effect.
The benchmark one year savings rate has been cut by 25bps to 1.75 per cent with immediate effect.
The reserve requirement ratio has been dropped by 50bps with effect from September 6.

It would seem logical that the FED will NOT raise interest rates next month
But FT wrote this-

Show steel and raise rates or the financial system will fracture

e MUST raise rates and the headline does address a necessity. But to do it now? The dollar would surge . And the global economy would come close to collapse. (Two major economies going in different directions)


Infections in the Elderly

Common infections like UTIs and influenza can happen to anyone, but for adults over the age of 65, these illnesses may be much harder to diagnose — leading to ongoing discomfort, chronic poor health and a higher risk of hospitalization or even death.

In fact, one third of all deaths in seniors over 65 result from infectious diseases, according to the American Academy of Family Physicians (AAFP). Though seniors are more susceptible to infection overall, seniors with dementia or those who are in long-term care may be at an even greater risk.

For caregivers, it’s critical to learn about the most common infections in the elderly and their often-elusive signs and symptoms: “Nonspecific symptoms, such as loss of appetite, decline in functioning, mental status changes, incontinence and falls, may be the presenting signs of infection,” according to an article in Infectious Disease Clinics of North America.

If we stay alert to any changes in senior health, and take steps to ward off any infections that might be preventable, we can help promote greater wellness and quality of life for our loved ones in their golden years.

Here are the five most common infections in the elderly:

1. Urinary Tract Infections in the Elderly

Urinary tract infections, or UTIs, are the most common bacterial infection in older adults, reports the AAFP. The use of catheters or the presence of diabetes can increase the risk of UTIs in elderly people. Sudden changes in behavior, such as confusion or worsening of dementia, or the onset of urinary incontinence, are common warning signs — pain or discomfort don’t necessarily happen with UTIs in seniors. If you suspect a UTI, a physician can perform a urinalysis or other testing to confirm the diagnosis, and then prescribe antibiotics if needed. Caregivers should make sure their loved ones drink plenty of water, as this can help prevent UTIs.

2. Elderly Skin Infections

Changes to aging skin and its ability to heal and resist disease mean that skin infections get much more common as we get older. These include viral infections like herpes zoster (shingles), pressure ulcers, bacterial or fungalfoot infections (which can be more common in those with diabetes), cellulitis, and even drug-resistant infections like Methicillin-resistant Staphylococcus aureus (MRSA). Stay alert to any unusual skin itching, lesions or pain, and seek treatment if your loved one is in discomfort. Most skin infections are treatable, and shingles is preventable with a simple vaccine. Ward off other skin infections by practicing good hygiene such as proper hand washing, particularly if your loved one lives in a senior care community.

3. Bacterial Pneumonia in the Elderly

More than 60% of seniors over 65 get admitted to hospitals due to pneumonia (AAFP). Seniors are at greater risk for pneumonia for a variety of reasons, including changes in lung capacity, increased exposure to disease in community settings, and increased susceptibility due to other conditions like cardiopulmonary disease or diabetes. Classic symptoms like fever, chills and cough are less frequent in the elderly, says the Infectious Disease Clinics of North America; instead, keep an eye out for nonrespiratory symptoms like weakness, confusion, or delirium. Doctors usually prescribe antibiotic treatment for bacterial pneumonia. Some types of pneumonia can be effectively prevented using a pneumococcal vaccine, and this is highly recommended for nursing home residents.

4. Elderly Influenza

Influenza and pneumonia combined add up to the sixth leading cause of death in America — 90% of these in senior adults (AAFP). Weakened immunity in the elderly, along with other chronic conditions, increases the risk of developing severe complications from influenza, such as pneumonia. Because influenza is easily transmitted by coughing and sneezing, the risk of infection increases in a closed environment like a nursing home. Cough, fever, and chills are the common symptoms, though, again, influenza may present different signs in older adults. Annual flu vaccinations are usually recommended for seniors in order to prevent infection, but for those already infected, a physician may prescribe antiviral medications to reduce symptoms.

5. Gastrointestinal Infections in the Elderly

Age-related changes to digestion and gastrointestinal flora put seniors at increased risk of developing gastrointestinal infections. Two of the most common are Helicobacter pylori, which may cause nausea, upper abdominal pain, and fever as well as leading to long-term illness such as ulcer or gastritis; and Clostridium difficile, an increasingly common diarrhea-causing infection, which usually occurs due to antibiotic treatments that suppress healthy gastrointestinal flora. Both illnesses are more common in long-term care facilities. While H. pylori is treated using a combination of drug therapies, C. difficile treatment involves halting the use of the antibiotic causing the problem.

8/24: Risk

People have an amazing ability to discount risks that threaten their livelihood. That's dangerous because people who should be the most experienced experts in a field may be the least able to objectively assess their industry.

EFM- the elderly in particular

Risk has a lot to do with culture. Europeans and Canadians are generally wary of the stock market. For Americans, it's a pastime. The French prefer raw milk. Americans are warned against it. Canadians are banned from it. Europeans are terrified of nuclear exposure. Americans couldn't care less. Walk through an international airport and you'll see one person wearing a face mask to prevent the spread of illness and another letting their kid crawl on the floor. Everyone wants to believe they're thinking objectively, but most of the time you're just reflecting the cultural norms of where you were born.

EFM- the one particular risk here is affinity scams. This represents investing withh like people- race, religion, country of origin, etc. 

Success is an underrated risk. Jason Zweig once wrote: "Being right is the enemy of staying right -- partly because it makes you overconfident, even more importantly because it leads you to forget the way the world works."

Risk's greatest fuels are debt, overconfidence, impatience, a lack of options, and government subsidies.

EFM- The government via schools et al does not provide anything (or very little) to consumers to help them in real life investing. The industry does not provide anything to the reps. The licensing preparation via both entities does not require inight to real life investing or insuance

Its greatest enemies are humility, room for error, and government subsidies.

EFM- It should be knowledge but that ain't gonna happen

Nothing in the world can give a damn less than risk. Risk doesn't care about your political views or your morals. It doesn't care what your view of the market is, or what you were taught in school. It's an indiscriminate assassin and a master at humbling ideologies.

EFM- but you can limit risk if you want to. But that is not offered as an option by the industry. They make a lot more money letting you suffer losses so big they have destroyed families and businesses.

Risk masquerades as your best friend. It tells you you're doing the right thing and making the right decisions before turning its back on you and making your life miserable.

EFM- Sure, if you sit there like a lump and do nothing to curtail losses.

You can create risk by trying too hard to eliminate it. Dutch psychologist Adriaan de Groot showed that amateur chess players drive themselves crazy trying to calculate the perfect move, while chess masters look for a pretty good move within a broader strategy. In a lot of fields, the smartest people don't have the most sophisticated models. They have the wisest rules of thumb.

Risk can be handled without software algorithms  or gurus.

Risk feeds off neglect and belittlement. The more you point and laugh at it, the stronger and more dangerous it becomes.

EFM- got to be diligent and unemotional.

We're not very good at communicating risk. No one wants to hear that there's a 20% chance of a recession in the next year; they want a buy or sell recommendation. No one wants to hear about the prevalence of false positives; they want to know if they have cancer or not. Communicating in certainties for something that works in probabilities makes us dumber.

EFM- Surprise- risk with almost any allocation can be numerically identified. Consumers should know what may befall them BEFORE the blade falls. 

The more familiar we are with something, the less risky it feels. But the opposite is often true. Car accidents rarely make the news, but kill 32,000 Americans per year. Terrorism, fracking, shark attacks, and swine flu kill relatively few, but dominate headlines at the slightest event.

EFM- True- consumers have little objective intellect 

The more the media is talking about a risk, the smaller it probably is. If something's making headlines, people are already preparing for how to deal with it and anticipating its downsides, which goes a long way in making something less risky

EFM- Well, risk has been identified .since 2008 but I do concede consumers have paid little attention as the market rose and rose. On the other hand, FT, Economist, WSJ and more have stayed hard on the issues since they were getting worse.

There are two parts of risk: How severe it is, and how long it lasts. In investing, there's too much emphasis on the former and not enough on the latter. A 30% crash that rebounds in a year or two probably isn't a big deal. But above-average fees left unchecked for decades can be devastating.

EFM- This strikes as borderline insults. Note that instead of 44% and 57% Morningstar used 30%. Instead of 13 years of no return, they used one or two years.

Learn how to manage risk, taking the right amount of it and handling it when it wants to fight you, and it can be your best friend. It is the seed of opportunity, and necessary to get ahead in almost every field.

EFM- you need to do risk off/risk on and the appropriate times. Their commentary sounds like a nice homily that can such in real life.

Do yourself a favor and learn about risk vicariously through others. Other people have screwed everything up that there is to screw up. Learn from their mistakes rather than figuring it out the hard way. 



  1. Can Governance Quality Predict Stock Market Returns? New Global Evidence


Paresh K Narayan (Deakin University) ; Susan S Sharma (Deakin University) ; Kannan Thuraisamy (Deakin University)

We develop country-level governance indices using governance risk factors and examine whether country-level governance can predict stock market returns. We find that country-level governance predicts stock market returns only in countries where governance quality is poor. For countries with well-developed governance, there is no evidence that governance predicts returns. Our findings also confirm that investors in countries with weak governance can utilise information contained in country-level governance indicators to devise profitable portfolio strategies.

  1. An analysis of the dynamics of efficiency of mutual funds




Jorge Galán ; Sofía B. Ramos ; Helena Veiga

This paper studies the efficiency of a sample of mutual funds that invest in the United States. Estimating a production function using Bayesian stochastic frontier analysis, we find evidence that the underlying technology presents economies of scale both at the fund and firm level. We also find evidence that informational asymmetries affect efficiency. Funds that invest domestically are likely to be more efficient than foreign funds investing in the US. Moreover, an inspection at the distribution process shows that funds sold directly to investors rather than by financial intermediaries are more efficient. The level of inefficiency persistence is overall high.Persistency of inefficiency is particularly higher for ethical funds, funds oriented to large firm sand lower in funds oriented to growth firms. The analysis done in two separate periods also shows that the efficiency of the funds changes. In particular, funds oriented to non-ethical, small and growth firms b ecome more efficient over the period. Finally, funds' efficiency decreases during global financial crisis, but at the end of the sample period some funds recover and their efficiency levels are higher than those registered before the financial crisis. Our results have implications for investors' decisions in mutual funds.


Economies of Scale , Efficiency , Mutual Funds , Persistence , Stochastic Frontier Analysis


C11 C23 C51 G11 G14 G15 G24


8/24:  Lots of indices- far more that I ever realized

Computerisation has revolutionised them. With benchmarks for stocks, bonds, commodities, real estate and many other assets, there are far more indices in the world than there are stocks. S&P Dow Jones, the biggest indexing company, alone calculates more than 1m indices each day.

This is an article to retain- it is excellent.

8/23: The 2015 Retirement Confidence Survey: Having a Retirement Savings Plan a Key Factor in Americans’ Retirement Confidence

LOTS of data

8/23: Old- As people age, they become more focused on maximizing positive emotions and social interactions—and more determined to block out negative experiences. This process, which experts call socioemotional selectivity, leads older people—including the affluent—to pay more attention to those who make them feel content and comfortable. At the same time, they are more likely to neglect warning signs that might have been obvious at a younger age.

Some recent research has shown that highly intelligent retirees—even those with no signs of dementia—find it harder to distinguish safe investments from risky ones. Compared with younger investors, those over the age of 65 “showed striking and costly inconsistencies” in their financial behavior, according to a study of 135 subjects led by Ifat Levy, a neuroscientist at Yale University who has conducted experiments on this topic. For example, older investors tend to make simple errors that younger investors avoid—and such problems only worsen with dementia. Those individuals who are elderly—but still mentally fit—maintain a healthy sense of caution when confronted with a complex or risky investment. But someone who has long made sensible financial decisions and is now declining cognitively is likely to remain self-confident “even if he has lost his reasoning capacity,”

 research on mental health and aging also shows that people in their 40s and 50s have little insight into the trajectory of their future decline. In other words, just when they are the most capable of planning ahead for a time when their judgment might fail, investors are at an age when they’re unlikely to believe that they actually need to plan ahead.


8/23: I am an expert- send me your money

 Dr. Berns and his colleagues asked people to pick between a sure win and a series of gambles. A functional magnetic resonance imaging (fMRI) scanner tracked the changes in blood flow in their brains as they made their choices. In half of the instances, an “expert economist” with impressive credentials suggested which option was better; otherwise, people made up their own minds.

When the “investors” had to think for themselves, two networks in their brains activated: One that determines the payoff from a sure win, and one that that calculates the likely gain from a gamble. These are the areas of our brain that normally make decisions by triangulating the value of what you have, the fear of loss and the hope of gain.

But when the “investors” listened to the expert’s advice, these activations faded – a result that Dr. Berns calls “off-loading,” or letting the expert’s brain do the work that yours would otherwise have done. Strikingly, these valuation circuits stayed quiet even when the expert’s advice was bad.

I asked Dr. Berns: Isn’t “off-loading” a pretty incendiary metaphor for describing these findings? “I wasn’t being that metaphorical; I was being fairly literal about it,” he said. When you make financial decisions on your own, your brain’s regions for evaluating risk and reward are active. When you take advice from an expert, however, two things happen: Activation tails off in those areas, and your choices move toward whatever the expert recommends. Thus, concludes Dr. Berns, “Your decisions are being driven by the advice, not by your own valuation structures,”

8/23: Largest pensions

8/23: Just one in six employers offers health insurance coverage to retirees these days.

8/23: Not a good economy:

in the period between 1995 and 2010, productivity in the US economy grew on average by 2.6 per cent each year.

That meant the potential trend growth rate in the US economy, or the speed at which the economy could grow sustainably ignoring capacity issues, was roughly 3 per cent. (The trend rate is usually calculated by adding population growth and productivity increases.) However, since 2010, overall average productivity increases have tumbled to just 0.65 per cent; indeed, over the past year private sector labour productivity, excluding farming, has grown by a paltry 0.3 per cent according to the quarterly data series.

the trend flies in the face of the popular belief that the western world is undergoing a technology boom. After all, the internet revolution has given us mobile phones with the computing power of 1970s rockets, while analysts such as the Oxford Martin school are now predicting that digitalisation has become so powerful that it will replace half of all US jobs in the next couple of decades.

Then there is another, even more intriguing related issue: a technology time lag. As Mr Blinder notes, if you look at the productivity figures in a wider context, there are two other notable points. First, America is not the only country where productivity has tumbled; this is seen in places such as the UK too. Secondly, this is not the first time such a swing has occurred: back in the 1970s and 1980s there was another slump after an earlier boom. This might be just a coincidence. But what is striking about the 1970s was that it was also a period of dramatic technological change; the onset of the computing era.

And while logic might suggest that innovation should boost productivity, the problem with new technology, as economists such as Andrew McAfee of MIT point out, is that it takes time for companies to harness. So, just as it took a couple of decades before computers raised US productivity trends, it might take time before the economy is truly boosted by today’s smartphones.

8/23: This is why statistics arem't showing the whole issue of employment, productivity:

It took less than a year for America's factory output to rebound from the 1991 recession. It took 3½ years to bounce back from the 2001 recession. Now, six years clear of the Great Recession, manufacturing output still hasn't returned to the pre-crisis levels it reached in 2007, according to revised economic data from the Federal Reserve.

The revised data show manufacturing output grew by nearly 2 percentage points less than previously estimated in both 2012 and 2013, and by nearly 1 point less in 2014. Output in defense and space equipment was revised even more dramatically downward: by 4 points in 2012, 7 points in 2013 and 2.5 points in 2014. 

8/34: This animated map shows how religion spread across the world

Great insight

A Brief History of Everything

A supersized MinutePhysics that tackles our evolution, from the Big Bang (which occurred on a Tuesday after a WWF Pay per View) to present day.

8/23:United States Steel Corp., Pittsburgh, will freeze benefit accruals in its main defined benefit pension plan and two other supplemental plans, effective Dec. 31, said an 8-K filing Friday.Participants will be transitioned to a defined contribution plan.

8/23 Only Half of U.S. Singles Have a Retirement Savings Account
"The population of single people is rising, but along with that growth comes a troubling statistic about their retirement savings accounts: Only 51 percent of unattached people have one.... Retirement savings accounts have been set up, in contrast, by 68 percent of people living with a partner and 84 percent of married adults. Almost half of adults today don't live with a spouse, according to the U.S. Census. That's up from about 30 percent in 1967."

8/23: 2015 National Cash Balance Research Report (PDF)
"Marking the highest year-over-year increase in a decade, the number of new Cash Balance plans added by plan sponsors increased 32% in 2013 ... Between 2008 and 2013, there was a 43% increase in new plans nationwide ... Cash Balance plan assets are approaching $1 Trillion nationwide ... Cash Balance plans make up more than 28% of all defined benefit plans, up from 2.9% in 2001 ... 89% of Cash Balance plans are in place at firms with fewer than 100 employees."

8/23: China's hurting

China’s manufacturing sector this month suffered its biggest shrinkage in six and a half years, the latest sign of a malaise in the powerhouse economy that is sapping growth in emerging markets in Asia, Africa and Latin America and sending currencies into a swoon.

8/23: Race employment

8/23: S&P 500 (FT)
 Only 36 per cent of the companies in the S&P were there in 1994. Technology has increased from 8 to 13 per cent of stocks in the index. (It was about 28% in the dotcom)

it is weighted by market value, with the largest companies receiving the largest weighting. No active manager would ever do this. Instead, they would muster their best ideas, and buy roughly equal amounts of each; there would be no point in weighting their holdings according to the size of the company.

S&P has long published an equal-weighted 500 index, in which each stock is 0.2 per cent of the index. This is probably a more valid benchmark than the S&P 500 itself — and as the chart shows, it is much harder to beat. The mere act of regular rebalancing needed to keep it equal-weighted means taking profits in gainers and buying stocks that have recently fallen — which is good. It also overweights smaller and cheaper stocks, which do well in the long run.

8/23: For all the pluses and minuses, is this the biggest threat within China?????- less than 1 percent of China’s 500 cities meet WHO air quality standards. China’s environment ministry concedes that nearly 2/3 of underground water and 1/3 of surface water is “unfit for human contact.” A new study estimated that 4,000 Chinese die prematurely each day thanks to air pollution.

8/23: Statistics Just plain wrong (Economist)

Academic scientists readily acknowledge that they often get things wrong. But they also hold fast to the idea that these errors get corrected over time as other scientists try to take the work further. Evidence that many more dodgy results are published than are subsequently corrected or withdrawn calls that much-vaunted capacity for self-correction into question. There are errors in a lot more of the scientific papers being published, written about and acted on than anyone would normally suppose, or like to think.

Various factors contribute to the problem. Statistical mistakes are widespread. The peer reviewers who evaluate papers before journals commit to publishing them are much worse at spotting mistakes than they or others appreciate. Professional pressure, competition and ambition push scientists to publish more quickly than would be wise. A career structure which lays great stress on publishing copious papers exacerbates all these problems. “There is no cost to getting things wrong,” says Brian Nosek, a psychologist at the University of Virginia who has taken an interest in his discipline’s persistent errors. “The cost is not getting them published.

scientists’ grasp of statistics has not kept pace with the development of complex mathematical techniques for crunching data. Some scientists use inappropriate techniques because those are the ones they feel comfortable with; others latch on to new ones without understanding their subtleties. Some just rely on the methods built into their software, even if they don’t understand them.

EFM- Though directed at medicine, the same commentary could be addressed to the planning industry. Actually, no it could not since the statistics would encompass few data- think of the years of investment returns. 200 years- a joke. 100 years- little better. So the industry uses what "fits" and, we have the evidence for efficient markets- or not. There is rebalancing- but hardly anyone tested the specs. Medesess did and effectively found that the initial study (and about the only one as far as I can tell) was wrong. Due to a very limited pool of mathematicians, a lot of the rules of thumbs are simply based on erroneous data, wrong assumptions, etc. but they must be overlayed by human emotions.

I cannot say that all I have studied and attempted to assimilate will lead to correct practices. But except for a coule acadmcians, whose studies require additional verification, the industry  will continue with marketing and sales. This has worked very well for decades and even with some grousing regarding fees, should continue in fine shape.

8/23: Take a look at this-----NYSE Margin Debt:


401(k) participants invested in equity mutual funds pay less than half the amount of expenses for a retail investor.

At year-end 2014, 401(k) plan assets totaled $4.6 trillion, with nearly 38% invested in equity mutual funds.

In 2014, the average expense ratio for equity mutual funds offered in the United States was 1.33%, but 401(k) plan participants who invested in equity mutual funds paid less than half that amount—0.54%, on average, according to data from the Investment Company Institute (ICI).           

According to the report, “The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2014,” the expense ratios that 401(k) plan participants incur for investing in mutual funds have declined substantially since 2000. Back then, 401(k) plan participants incurred an average expense ratio of 0.77% for investing in equity funds. The 2014 figure of 0.54% is a 30% decline since 2000.

The expenses that 401(k) plan participants incurred for investing in hybrid and bond funds also fell from 2000 to 2014, by 24% and 28%, respectively.

From 2013 to 2014, the average expense ratio that 401(k) plan participants incurred for investing in equity mutual funds fell from 0.58% to 0.54%. For investing in hybrid funds, the average expense ratio fell from 0.57% to 0.55, and for investing in bond mutual funds, it fell from 0.48% to 0.43%.

EFM- Bond prices are still too expensive- especially since overall values might be zero for some time. Equity and hybrid funds are acceptable at this expense ratio.

8/23: Good synopsis

How mortgage lenders price loans & why you should care

8/20: Revenue sharing

For the year ended December 31, 2014 Edward Jones received $153.2 million from mutual funds and 529 product partners and $55.9 million from insurance product partners.  Their net income was $770 million.  So this represents 27% of their Net Income.

So now do you understand why Brokers and Registered Reps won't let clients go to cash?  This income is extremely important to their bottom line and they will not receive this income if they go to cash.

 Do you understand the same thing goes for 12b-1 fees that are paid from Mutual Funds?

 Besides currently being able to do transactions (buying and selling stocks and bonds) for commissions, this is a high revenue producer for big brokerage firms.

8/19: Study Shows Openness Needed on 401(k) Investment Options
"According to the study, proprietary funds, with a 13.7 percent deletion rate, were much less likely to be cut out of a 401(k) plan's menu than unaffiliated funds, which had a 19.1 percent deletion rate. The bias favoring proprietary funds was particularly pronounced for poorly performing funds, with plans removing just 13.7 percent of the funds in the poorest performing decile, or lowest 10 percent of funds, which was much less than the 25.5 percent deletion rate for unaffiliated funds in the same bottom decile of funds[.]"

"There are no shortcuts to anyplace worth going."

-- Beverly Sills,

student loan calculator.

·       It can tell you what the average student loan debt is at schools you’re considering, what sort of salary might make the debt affordable and how different repayment options could significantly affect what you ultimately spend.

8/19: Fidelity

Minimum Required Distribution Calculator

819: Robo advisers all over the board with allocations

Automated or robo investment advice is far from uniform across the different platforms available today, and — depending on an investor’s goals — all have their own benefits and setbacks, The Wall Street Journal writes.

Robo-advisors employ modern portfolio theory to diversify across a wide array of investments in the most cost-effective way, which is why these platforms invest in ETFs, says the Journal. But the type, variety and extent of those allocations are different across the platforms. For example,Wealthfront veers more toward emerging-markets funds, while Betterment prefers small-cap stocks and some emerging markets, according to the paper.

Then there’s Charles Schwab, whose Intelligent Portfolios invest in the same securities as the traditional ETFs they mirror but allocate not only according to the security’s share of the overall fund, but also according to fundamental asset allocation; i.e., they are weighted according to fundamentals such as sales or revenue, the Journal writes. This “smart beta” investing approach has its detractors, since such portfolios require more active management and are thus less tax efficient. Vanguard, which has now begun offering its own automated platform that invests in index funds, recently released research concluding that “smart beta” investing is not a substitute for traditional index funds, the newspaper reports.

Worth a read

A Belgian NGO called APOPO has developed a way to train African pouched rats (named for the storage pouch in their cheeks) to sniff out bombs quickly and safely.

They used this rat because it has an incredibly fine-tuned sense of smell and a long lifespan (8-9 years) to yield returns on the nine months of training they undergo.

They're called Hero Rats, and not one has died in the line of duty since the program started in 1997.

The average mine requires 5 kg (roughly 11 pounds) of weight to trigger an explosion, but even the biggest of these rats are only around 1.5 kg (3.3 pounds).

Since they're trained to sniff out explosives exclusively, they aren't distracted by other metal objects the way human minesweepers are.

They can effectively search 200 square meters in less than 20 minutes.

A team of humans would need around 25 hours to do the same job.

Since they're in the African sun a lot, the Hero Rats get sunscreen to keep them cancer free.

If a rat does get cancer, it receives full medical treatment.

The rats are "paid" in avocados, peanuts, bananas and other yummy, healthy treats.

After about 4-5 years on the job (or whenever they lose interest in working), they're allowed to retire.

Retirement consists of eating all the tasty fruit their little hero hearts desire.

8/19: Defined Contribution Plan Study Looks at How Much Participants Rely on the Guidance of Their Employers 
"When given a choice between two job offers (one had an employer-sponsored retirement plan, and one had a higher salary), pre-retirees are five times more likely to choose the retirement plan offer ... [N]early all retirement plan participants -- nine in 10 -- said they have at least some regret about when they started saving for retirement. Some 75 percent said they could have saved at least a little more in the past.... The large majority of people want at least a 'slight nudge' from their employers when it comes to saving, but employers think that number is even lower. Eighty percent of study participants believe they would have more in savings if their employer would have done more to nudge them along." (American Century Investments) 

8/18: Guidance

Well, I have finished my last video and they will be put up for sale as soon as my new website gets done. No one has ever done anything like this and no one else ever will. More info to come.

8/18: Used to be that a GDP under 2% meant a recession. But with fabricated economies based on the huge influxes of money, it's anyone's guess. But when they are this low:

Gross domestic product in the eurozone increased 0.3 per cent, undershooting analysts’ estimates of 0.4 per cent, as France’s economy stagnated and Germany, Italy and the Netherlands grew less than,

8/18: Ugly numbers

''8/18: Best Interests diatribe

8/18: Technology

Technological advance has always enhanced household as well as business efficiency. Our domestic productivity has benefited from washing machines, vacuum cleaners and central heating, and before that from electric light and automobiles. But at least these things were partially accounted for: from an economic perspective a car is a faster and cheaper horse. Statisticians in principle incorporated these improvements in the efficiency of consumer goods into their measurement of productivity, though in practice they did not try very hard.

But the technological advances of the past decade seem to have increased the efficiency of households, rather than the efficiency of businesses, to an unusual extent. An ereader in the pocket replaces a roomful of books, and all the world’s music is streamed to my computer. We look at aggregate statistics and worry about the slowdown in growth and productivity. But the evidence of our eyes seems to tell a different story.

8/18: where women out number men and vice versa

8/18: Passive vs. active


8/18: The world of debt

8/18: Saudi Arabia wins oil battle hands down. They pushed the price so low that it is not worth the higher costs with shale

fredgraph (7)

8/18: I gave up on Japan a long time ago

The Japanese economy, which shrank at an annualised rate of 1.6 per cent in the second quarter of 2015, in a blow to Prime Minister Shinzo Abe’s hopes of reviving the country’s growth.

8/18: How do you price life-saving drugs? Drug companies often mark up the price of new drugs for the “value” they offer the patient, even if that far exceeds what the market can bear. But this is a questionable model, says Jonathan Ford. In other industries, the public accepts value-based pricing because it can walk away. That is not the case with life-saving remedies, especially when alternatives are non-existent or less effective. Aggressive value maximisation also sits ill with a patent system that suppresses competition.


from "The 2013 Risks and Process of Retirement Survey," done by the Society of Actuaries.

·        Of the pre-retirees surveyed, 38% expected to work until at least 65. Another 15% expected not to retire at all. Yet 54% of the retirees surveyed had retired before age 60.

·        Many pre-retirees—59%—planned to stop working gradually. Yet only 22% of retirees had done so. While 35% of pre-retirees intended to keep working part-time, only 10% of retirees actually did.

8/17: Down the tubes??

 Moscow, which relies on oil and gas sales for nearly 50 percent of its government revenues. In 1999, oil and gas accounted for less than half of Russia’s export proceeds; today they account for 68 percent. Moscow has grown so reliant on energy sales that for each dollar the price of oil drops, Russia loses about $2 billion in potential sales. For Russia to balance its budget, oil will need to surge back to $100 a barrel.

For each hour worked, the average Russian worker contributes $25.90 to Russia’s GDP. The average Greek worker adds $36.20 per hour of work.  The average for U.S. workers? $67.40.

8/17: HYBRID LIFE-LTC TREND - LIMRA reports that the sales of long-term-care insurance policies dropped last year, but those of life combination products have experienced double-digit increases in the past five years. "Combination products allow less financially stable people to purchase long-term coverage."

8/17: DEATH CROSS - A rare "death cross" appeared in the chart of the Dow Jones Industrial Average, suggesting the stock market may have already begun a new long-term downtrend. Although chart watchers have seen the bearish technical pattern coming for some time, it can still send a chill down bulls' spines when it is finally confirmed. A death cross is said to have occurred when the 50-day simple moving average crosses below the 200-day moving average, which is widely used to gauge the health of the longer-term trend. Whatever that means.

8/17: LTC is tough to understand but necessary for many consumers

Skip Navigation Links7 Long-Term Care Insurance Trends to Watch

​ by Brian I. Gordon, CLTC; and Murray A. Gordon

Long-term care insurance (LTCI) is a young product by industry standards. As such, it continues to grow and evolve at a rapid pace.

The first LTCI policies appeared just 41 years ago, in 1974. Compare that to life insurance, which has been around since the early 1700s. The LTCI industry is still learning and changing accordingly. So where is the product and industry headed in 2015? Here is our take on the trends to watch.

Younger Consumers Are Buying LTCI

Fifteen years ago, typical LTCI buyers were in their 70s. Today, they’re in their mid-50s, according to the June 2012 Long-Term Care Insurance ASPE Research Brief from the U.S. Department of Health and Human Services. There are various theories about this. Anecdotally speaking, many of the younger buyers we talk to have witnessed family members struggling with long-term care issues and they understand the need on a very personal level.

Of course, buying younger has significant advantages, including: premiums are lower; younger people tend to be healthier, so they’re more likely eligible; and buying sooner rather than later keeps acquisition costs down.

More Consumers Are Partially Self-Insuring

Rather than purchase a LTCI policy that will cover 100 percent of potential liability, we’re finding that more clients are self-insuring 25 to 50 percent, often with their planner’s guidance.

They do this by designating part of their assets—Social Security, 401(k)s, savings, etc.—as their long-term care fund. As a result, they’re purchasing policies with lower benefit amounts or shorter durations, so policies are more affordable and better integrated with their overall financial plan.

Costs and Claims Are Rising

In 2014, carriers paid $7.85 billion in LTCI claims, a 5 percent increase over 2013, according to February 2015 data from the American Association for Long-Term Care Insurance (AALTCI). That brings LTCI claim utilization to an all-time high.

In addition, the cost of care continues to increase. According to Genworth’s 2015 Cost of Care Survey, all forms of long-term care—home care, assisted living, adult day care, and nursing facility care—have risen steadily over the past 12 years.

Furthermore, utilization is changing. Forty-one years ago, facility care was the only option. Today, alternatives such as home care and assisted living are increasingly popular. In fact, 70 percent of claims opened in 2012 started as home care or assisted living, as opposed to 30 percent for skilled care, according to the AALTCI 2014 Long-Term Care Insurance Sourcebook.

Premiums Are Rising, But Moderately

When carriers developed the first LTCI products, they based their pricing on incorrect actuarial assumptions. Their benefit utilization projections were low, resulting in higher-than-anticipated claims. That’s why most carriers raised their rates over the last few years, some by 75 to 100 percent.

Now rates are closer to where they should be. In addition, the National Association of Insurance Commissioners (NAIC) recently adopted an amendment designed to protect consumers. States are developing procedures for limiting LTCI rate increases. So although rate increases will be inevitable, they will be more manageable.

Underwriting Refinements Continue

With more claims experience under their belts, LTCI carriers continue to refine their underwriting methodologies. Over the past five years, applicants with health conditions have found it increasingly harder to qualify.

At least one carrier, Genworth, now requires paramedical exams. That same company has updated its underwriting classifications to include family health history, focusing on early-onset coronary artery disease and dementia.

Utilization is influencing rating methods, too. For years, the industry has known that women generate about 65 to 70 percent of claims (see the 2014 Long-Term Care Insurance Sourcebook for more on this). Two years ago, Genworth introduced gender-based pricing, and most of the market quickly followed suit.

Policy Innovations on the Way

Although asset-based plans are on the rise, traditional LTCI carriers are investing in product development. Some of the most intriguing innovations revolve around tweaking the policy elimination period.

Instead of measuring the elimination period in months, one carrier is reputedly developing a dollar deductible, ranging from $100,000 to $250,000. Others are poised to extend the elimination period, which currently maxes out at one year, to longer durations of two, three, and four years. Such initiatives will help lower premiums and may also be underwritten differently.

Since we’ve been receiving requests for longer elimination periods from financial planners and consumers for some time, we have every reason to believe these innovations will be well received in the market.

Asset-Based Plans Are Growing in Popularity

While asset-based plans have been around for more than two decades, they’ve caught fire in the last five years. According to industry estimates, sales of asset-based plans are outperforming traditional LTCI plans. Why? Because compared to traditional LTCI plans, asset-based plans can: offer guaranteed premiums (no increases); offer greater flexibility in premium payment schedules; and guarantee that if LTCI benefits aren’t used, the insured’s beneficiary will receive them in the form of a life insurance or annuity benefit.

Several life insurance carriers have recently introduced their first asset-based life/LTCI products, and more are considering it. With asset-based plans, it’s easier to calculate risk than with traditional LTCI plans, which adds to their appeal. 

To those of us in the LTCI industry, this is very exciting news. For more than two decades, we have watched carriers exit our market. For the first time in years, consumer’s carrier choice appears to be expanding. This is a win-win for everyone. 

In summary, LTCI has changed dramatically over the last 41 years, and there are more changes ahead. But one thing that hasn’t changed is the need for LTC planning. 

People are living longer, resulting in a greater likelihood of needing care. Fewer family members can care for loved ones at home. An unplanned long-term care event can decimate the most meticulous financial and retirement plans while placing enormous stress on families. Although not everyone needs long-term care insurance, they do need a long-term care plan.

Brian I. Gordon, CLTC, is president of MAGA Ltd. (, one of the nation’s original long-term care planning specialists.

Murray A. Gordon is CEO of MAGA Ltd. He founded the firm in 1975. Today, MAGA serves financial advisers and consumers, offering long-term care planning solutions, including asset-based and traditional LTCI products.



Traditional LTCI or Hybrid? Help Your Client Make an Informed Decision

By Kerry Peabody, CLTC
Hybrid life insurance/long-term care policies may be an excellent answer to your client’s long-term care problem, but you must closely examine how they work. Understand how the protection hybrids offer compares to that provided by traditional long-term care insurance, because despite the common accolades of hybrids (for example, stable premiums and ease of underwriting), there may be reasons to stick with traditional LTCI.

Here are some issues to address when considering a hybrid plan:

How Are Benefits Triggered?
Usually, the triggers for hybrid plans are quite similar to the triggers for traditional LTCI, including help with activities of daily living or supervision due to a cognitive impairment. But some hybrid plans require the need to be deemed permanent. Many conditions leading to long-term care are not permanent, so this wording could become problematic for certain clients at claim time.

How Are Benefits Paid?
Many current hybrids do not have a defined long-term care benefit. Instead, they use a “chronic illness accelerated benefit” approach. This means the client can request a lump sum payment or monthly payments, providing some flexibility. Although there’s usually no up-front charge for this type of rider, there is an actuarial charge against the benefit at the time of the acceleration that can be significant. Here’s an example:

  • Male, age 60, standard non-tobacco rates
  • $250,000 death benefit
  • Annual premium $5,172

At age 80, the client needs long-term care; he requests a $30,000 acceleration to help cover those costs. He receives a $30,000 benefit payment, but this reduces his remaining death benefit from $250,000 to $206,099—a charge of $43,901. This is the “price” he’s paid for the rider.

Also, some policies require that a minimum death benefit be retained. In this example, the client must keep at least $50,000 of death benefit active in the policy. So although he purchased a $250,000 life policy, he will be able to receive around $130,000 for long-term care over the life of the policy after the minimum death benefit requirement and actuarial charges are taken into account.

Inflation Protection Riders
With some exceptions, a life/long-term care hybrid typically does not have an inflation-protection rider. If a client buys a $200,000 universal life policy with a 2 percent long-term care rider, it would provide $4,000 a month for long-term care. In 20 years, the benefit would still be $4,000 a month. There is no benefit growth. Of course, if the client buys a $2 million death benefit, they’ll have $40,000 per month available for long-term care costs. Either accept the fact that the LTC benefit will be diluted as time goes on, or buy a much larger life policy from the start.

Long-Term Care Partnership Eligibility
The Long-Term Care Partnership Program allows clients to keep more of their countable assets if they need to apply for Medicaid. A client with a $200,000 partnership-eligible policy would be allowed to keep an additional $200,000 of their own assets, above and beyond the normal Medicaid asset limits. Hybrid life policies do not qualify for the Partnership program.

Is a Need Underfunded?
Don’t try to do two things at once. If a client has a legitimate need for the death benefit, but they rely on a hybrid policy to also fund potential long-term care costs, they could be leaving the need for the death benefit (spousal support, special needs trust, estate taxes, etc.) underfunded.

Tax Benefits in Flux
A client typically will not get an up-front deduction for life insurance premiums, but they may for traditional LTCI, and any benefits paid by a tax-qualified LTCI policy will be non-taxable. The tax handling of many life/long-term care hybrids still has a great deal of ambiguity.

Educate Clients
From a true long-term care protection standpoint, traditional LTCI can provide vastly better protection. But traditional LTCI comes with its own risks, including “use it or lose it” and the potential for rate increases in the future. However, clients with these concerns should keep in mind that pricing assumptions have changed significantly on traditional LTCI policies in the past decade. As a result, drastic rate increases are far less likely on today’s plans.

Life/long-term care hybrids have some advantages, and they may hold an important spot in a client’s comprehensive financial plan. Individual client needs and the impact various products will have at the time of claim need to be thoroughly considered. Don’t simply assume that one product is as good as the other. Do a thorough review of client needs and concerns, and educate them about the impact of the different long-term care products

8/16: Sluggish eurozone The French economy is stagnating and growth is below expectations in Germany, Italy and the Netherlands. Finland contracted for a fourth consecutive quality.
EFM- dicey economics with The FED increasing interest rates and China- who knows what may happen
8/16: Random allocation