MOODY'S REVIEW

APRIL 1997

COMMENTARY ON INVESTMENT AND PLANNING ISSUES

ERROLD F. MOODY JR. BSCE, LLB, MBA, PhD

MASTER OF SCIENCE IN FINANCIAL PLANNING

REGISTERED INVESTMENT ADVISER

WWW.EFMOODY.COM

HOME APPRECIATION: (FED Board of Philadelphia) We all have seen the changes in home appreciation over the last ten to twenty years, and here is an average of the changes per different time periods
1977- 80 1980- 83 1983-87 1987-91 1977-91
Average 6.1% -2.4 3.3 2.3 2





The study reviewed areas across the United States and showed wide volatility in different areas in different time frames. However, with lower inflation and with the key component of wealth now focusing on the stock market, rates of appreciation should stay relatively low in almost all areas for some time to come. You would have to have very high inflation and very high interest rates to reach the returns of the early 80's.

AMERICAN EXPRESS ADVISERS: You can directly log on to their WEB site where they talk about their capability, knowledge, etc. This shows just how good it might be. They had commentary on how one could save for college by using a UGMA or UTMA where one has the ability to put aside money that is taxed only at the child's tax bracket (minor caveats apply). Doesn't work and hasn't worked for many years. Outside of the fact that the monies belong to the child at the age of majority and therefore can be spent any way they desire (one major reason why parents don't like to use) is the fact that, unless you are paying for college in full, the colleges will take away about 35% of the money saved by the child and 50% of the income over $1,750 versus 5.7% of the assets saved by a parent and up to 47% of their income. So here is one of the largest "financial planning" firms in the U.S., used by major corporations, that either doesn't even know or won't even present the basics of investing.

American Express will use its name recognition as a major component of trust that potential consumers should focus on. But as I have stated ad infinitum, trust is NOT the answer to investing. Knowledge and competency is. Huge, huge difference.

ETHICS: The SF Chronicle noted that ethics is becoming a big business as the fines against companies grows exponentially when it can be shown that they did not provide at least minimal efforts to correct corporate misdeeds. Unfortunately, while the financial planning has some ethical guidelines, they are rarely enforced and the bulk of the influential planning organizations use it as lip service.

FOUR YEAR COLLEGE COSTS: (Smart Money 12/96) Take a look at these Four Year college costs and then tell me why you had kids. Includes tuition and fees, room and board, and other expenses but no drugs.
Years Until College Public College* Private College** Elite College**
1 $43,561 90,973 129,372
2 45,703 95,052 135,356
3 47, 956 99,317 141,623
4 50,326 103,780 148,185
5 52,818 108,447 155,057
6 55,440 113,330 162,253
7 58,198 118,439 169,790
8 61,100 123,783 177,683
9 64,153 129,374 185,949
10 67,366 135,224 194,607
11 70,746 141,345 203,675
12 74,303 147,750 213,173
13 78,047 154,452 223,121
14 81,988 161,464 233,542
15 86,136 168,803 244,457
16 90,502 176,483 255,891
17 95,098 184,520 267,868
18 99,936 192,931 280,416



* Assumes 5.5% annual increase in tuition and fees, 5.6% increase in room and board and 3% increase for all other expenses.

** Assumes a 5% annual increase in tuition and fees, 3.8% increase in room and board and 3% increase for all other expenses.

Do you know how to plan for this cost????????????

FAS 106: (FW) You don't know what it is and you don't necessarily want to, but it, and some reasonably decent economics, might foretell strong earnings for many large companies. Essentially it meant that some companies had to take huge writeoffs a few years ago due to the perceived expense of medical care for post retirement benefits. But guess what? Instead of the 10% projected rate of increase on such costs, those firms that opted for managed care have seen the increase at only 5% to 6%. Some are projecting just a 4.5% increase. Regardless, the offset can be brought back in later and essentially shown as an increase in dividends. That means higher stock prices. But read further herein for problems that might drive medical costs back up.

FOREIGN INVESTMENT: (FED Board of St. Louis) It is generally held that U.S. industries go overseas due to the low wages. Far overstated. In 1995, 72% of the stock of U.S. direct investment abroad was in industrialized countries where wages are high. A majority of jobs in these countries are in Canada, France, Germany, Italy, Japan and United Kingdom. It's simple to understand- firms like to choose stable and prosperous markets. Additionally, for firms in developing countries, market access is the key to U.S. investment since most of what is produced by U.S. affiliates is not really exported to the U.S. "In actuality, only 12% of the sales by U.S. foreign affiliates in developing countries are exported to the U.S."

FLOOD INSURANCE: Even in view of the record floods, it's hard to imagine that only but a few people had flood insurance. Many didn't want to pay- others thought their homeowners insurance covered for such contingencies. In high risk areas, the costs is about $3 per $1000 of coverage. The policies cover for up to $250,000 for a dwelling and $100,000 for contents. Outside of high risk areas, the costs is about $100 annually. For information about special flood hazard areas call the Federal Emergency Management Administration at 800 358-9616. The National Flood Insurance Program has info about flood insurance at 800 427-4661.

ILLITERACY: 85% of kids appearing in juvenile court are illiterate. 85% of prisoners are illiterate. Either read and teach your kids to read or they and society will suffer the consequences.

VARIABLE ANNUITIES: (WSJ) These are the total fees for various variable accounts. Pay particular attention to the bond accounts.

Aggressive Growth..................2.21%

Balanced...................................2.11

Corporate Bond........................1.94

Government Bond....................1.91

Growth......................................2.11

Growth & Income.....................1.95

High Yield................................ 2.10

International Bond....................2.43

International Stock....................2.42

U.S. Diversified Equity.............2.09

Fixed Income Average..............2.00

A corporate or government bond fund- which are effectively limited to earn just its yield (capital gains essentially only available with declining interest rates) are crippled in overall return due to massive 1.91+% total fees. A Vanguard fund is about .30. International bonds with a 2.43% total fees can only make a reasonable return with currency fluctuation- and that is a whole mess of risk.

Lastly, remember, you never want to die with a variable annuity anyway- you would have screwed your beneficiaries. Don't understand that? O.K., how about this- do you understand basis? No? Then ask your adviser. If they can't find the answer (and I bet they are neither bright enough or trained enough to know what this issue represents) then you almost undoubtedly bought the annuity because it paid a nice commission to the agent. Happy now?

HMO's: A Foster Higgins 1995 study indicated that the traditional fee for service coverage by employers is dropping radically in favor of the cheaper alternatives of managed care. HMO's are used by approximately 70% of their respondents and are the plan of choice by about 40% of employees.

DOW DIVIDEND THEORY: This theory suggests that you buy the 10 Dow stocks that have the highest dividend yield. The reason that has happened is that the stock price has been beaten down and, should prices rebound on supposedly good stock, substantial gains may be had. Has it worked? Yes. Between 1985 and 1995, the returns were 18.3% versus 16.36% for the Dow overall. The return of 17.7% from 1973 to 1995 handily beat overall index of 11.9%. Not too shabby. Statistical studies showing that you would have done better by just buying the top four MINUS THE LOWEST PRICED DOW STOCK. That returned 23.1%. If you had just picked the second lowest priced stock, it returned 25.4%- but that is a lot of risk owning just one stock. However, my commentary here addresses a relatively obscure article that noted that doing the same thing with International stock produced a return of 20%. Unfortunately they didn't indicate what market/stocks were used or anything else, but it certainly bears watching.

DYNASTY TRUSTS: Actually, this refers to the generation skipping trust. You can leave assets to your kids- no big deal. But to leave assets to grandchildren and bypass your kids is a little more difficult. In such case, assets will still be taxed at regular estate tax rates PLUS an additional 55% on anything over $1,000,000. However, that's $1,000,000 in assets/gifts BEFORE you died. If you had actually bought a life insurance policy with $1,000,000 in payments, it could be worth, say, $5,000,000 when you died. And that will escape ALL tax if it had been bought in an irrevocable life insurance trust. Other advantages include that the assets in such trusts are beyond the claims of creditors and divorcing spouses against the beneficiaries. FW noted that a trust can only last so long under individual state laws but that Idaho, South Dakota and Wisconsin allow them to last indefinitely- as well as Delaware as long a real estate is not held. A corporate trustee will need to be named since they can last in perpetuity. Fees range from 1% to 3% so it ain't cheap. Be sure to use a trust protector agreement -or even give the beneficiaries the right to terminate the trust.

PORTABILITY: Some of the brokerage companies won't let you take one of their proprietary funds with you if you were to leave their firm- say to follow a broker you like. So you'd have to sell it and incur the taxes. Or leave it at the firm with an unknown broker. Well, now they are changing their tune and allowing you to take the funds with you to a new firm. But as a SF Chronicle article basically stated, so what? Proprietary funds are only marginal performers anyway so taking a bad fund doesn't say much for the investment purchase to begin with.



REFINANCING: The best way to determine if a loan is worth refinancing is by using a financial calculator. However, here is a little chart from HSH Associates that is helpful. Find your new interest rate on the left below. Then multiply your loan in thousands (A $50,000 loan=- 50) by the appropriate number on the right. That would be your new principal and interest payment. Subtract that number from you old mortgage payment. Then take all your closing costs (points, attorney fees, etc.) and divide that by the amount of your savings. That is how long, in months, it would take to recoup your fees. If you are going to live in your house for a long period of time, it might be worthwhile to refinance.
Interest Rate Payment number for 15 year loan Payment number for 30 year loan
7.50% 9.27 6.99
7.75 9.41 7.16
8.00 9.56 7.34
8.25 9.70 7.51
8.50 9.85 7.69
8.75 9.99 7.87
9.00 10.14 8.05
9.25 10.29 8.23
9.50 10.44 8.41
9.75 10.59 8.59
10.00 10.75 8.78



I'll add a note that I have commented upon a number of times. If a 15 year mortgage has a significantly lower interest rate and significantly fees, you may want that loan over the 30 year period. But you also need to consider how good your job is, how good other finances may be, etc. Why? Because should a financial crisis occur with a 15 year mortgage, you have to continue to pay a much higher monthly payment. On the other hand, a 30 year mortgage is much cheaper. For example, a $150,000 loan at 8.00% for 30 years is $1,100 per month (P&I only). A 15 year mortgage is $1,433- $333 more. Will that make a difference in your bills when you are out of work or in a financial crisis? You betcha. Of course someone invariably states that you end up paying a lot more interest over 30 years than 25 years. True. But all you have to do with the 30 year loan is make an additional $333 payment per month and you do the same thing as the 15 year loan BUT WITH A LOT MORE FLEXIBILITY.

S CORPORATIONS: Last year the law increased the number of participants to 75 from the previous 35. Another benefit in that participants are not subject to double taxation- one of the major disadvantages of a regular C corporation. So a lot of people prefer the S corporate status. But it is not without drawbacks- for example if the business is growing. That's because the first $50,000 of C profit is taxed only at 15% versus a much higher bracket for an individual taxpayer with an S corporations status. (Caveats apply for professional corps that have even the first dollar taxed at 35%.) Also, medical benefits can be deducted in full under a C status but just 40% of health insurance premiums under the S corp.

A S is good in a new startup operations where losses may be passed through to lower an individuals tax bracket.

STOCK VERSUS MUTUAL FUNDS AND NOT SLEEPING WELL: As may be quite clear in my teaching and writing, the use of stocks is so unbelievably difficult it almost defies description. Yes, I am aware of Motley Fool and their significant returns, but I think the strong economy may have done more to those returns than perhaps their formulas. So my focus is primarily on economic outlook and the use of index and managed funds. But one thing that I have noted throughout the years is the fact that the people that own just a few dollars or shares become absolutely unglued when it drops in value and want all sorts of information on a minuscule part of their portfolio. For example, I have had clients with over 1 million dollars- mostly in solid diversified funds they are comfortable with- clamoring for info on $1,000 to $10,000 of a stock they bought that dropped two points- knowing it had high volatility when they bought it. So they spend all this effort focusing on usually the wrong thing and miss the big picture of economic conditions.

OBESE: 40% of American adults and 22% of children are currently obese.

DEAD: Being the executor of an estate is a grueling, thankless and, most often, a depressing act. It's all the worse if someone dies intestate (without a will) and also has a lot of assets all over the place that need to be hunted down. Further, the executor must contend with probate- the state's review of all the assets and their distribution. Disputes may exist not only with siblings and other relatives, but distant creditors of dubious quality may elicit bitterness, guilt, and outright hostility. Further, the entire exercise can take weeks- if not months- longer than anticipated. Many executors say, "never again".

Here is a short list of the issues that one must consider in a standard probate. (California basic- may vary considerably in other states)

1. A will is written

2. An executor is appointed.

3. Person dies

4. Family notifies the executor and executor finds the will. (Remember that leaving a will in a "safe" place like a safe deposit box may not be a good idea. The bank will seal the box until it gets a court order. Therefore, you may want to personally be sure your executor always has an executed copy at all times.)

5. Executor takes steps to secure deceased's property (notifies banks, employers, etc. of the death; if necessary has utilities turned off, cancels newspapers, seals the house, etc.). Executor does not pay any debts or distribute any property at this time. Orders death certificates.

6. Executor may be involved with making funeral arrangements

7 A petition for probate is prepared. (The executor's attorney prepares the petition, which is filed with a death certificate and the original copy of the will.) At that time, the executor secures a federal tax identification number for the estate.

SPECIAL NOTE: It is true that you can negotiate fees for probate with the attorney, but doing post mortem death negotiating is only for the extremely thick skinned. It is one reason why I like the use of trust in many situations.

8. Newspaper notice. Mandatory with probate. This tells people of the death and that the will is being probated and that creditors have a fixed amount of time (usually no more than four months) to come forward or be forever barred.

9. Mail notices to heirs and beneficiaries. Executor must send copy of the petition for probate and a copy of the will to every beneficiary or heir.

10. Hearing for probate. Usually about six weeks after probates is filed.

At the hearing the judge will decide on the validity of the will. If valid, the will names the beneficiaries who will take the estate after creditors and taxes are paid. At the hearing, the judge signs "letters testamentary" allowing the executor to sell or change title to the deceased's property.

11. Inventory the estate. Hire an appraiser. File all claims for the benefits due the estate (these include fraternal or lodge benefits, social security, etc.).

12. File inventory with court

13. Pay creditors. Creditors are usually assembled and paid one month after time limit is exhausted (therefore at least five months after probate process begins). If there is not enough money in the estate to satisfy all creditors, the are paid in the following order:

a. Executor's fee if any

b. Attorney's fee

c. Reasonable funeral expenses

D Family allowance (usually a fixed sum of money for maintaining the deceased's spouse and dependent children while will is being probated.)

e. Homestead allowance (generally an amount needed to pay the normal upkeep of the home while the will is being probated.

f. Exempt property- a surviving spouse or children have a right to a fixed dollar value (varies from state to state) of deceased's tangible property, such as the car, furniture, paintings, etc.

g. Taxes (fiduciary tax on estate's income)

h. All outstanding medical expenses

i. All other claims

14. Pay state inheritance tax

15. Pay federal estate tax, if any. This is due nine months after death. Within this context, it is incumbent on the executor to bet at least the last three years tax returns to be sure they have been filed properly. The current tax filing will also need to be made.

16. Petition for distribution of the estate. Executor present final accounting to court.

17. Final notice in newspaper announcing closing of probate and distribution to heirs and beneficiaries.

18. Final Hearing- judge reviews executor's actions and closes probate.

Total elapsed time: at least nine months. And if anything can go wrong, it can go wrong with probate. Now that does NOT mean that probate is inherently bad in itself. But it does mean that there are a lot more unknown circumstances and people that can screw up anything, so be prepared.

NCQA: The National Committee for Quality Assurance is a non profit independent organization that reports on health plan quality. While not all HMO's have been rated, you should check if yours has and get the report. Here are some of the issues the NCQA checks for Quality

1. Doctors- make sure the health plan carefully reviews the doctors before they enter the HMO. The NCQA also checks for the doctor's performance and what percentage leave the plan each year.

2. Prevention- from actually preventing a disease (through immunizations), detecting risk factors early (prostate cancer) or by managing an existing problem to avoid complications.

3. Quality management- how well an HMO uses feedback from doctors and patients to improve care and service.

Satisfaction- how do member's like the care they receive? The NCQA makes sure the plan surveys members and takes steps to improve.

U.S. DEMOGRAPHICS: (NY Times) As we all know, the U.S. is getting older. Between 1995 and 2010, people older than 65 will grow slowly by about 6 million to 39.4 million from 33.5 million. But, between 2010 and 2030, the baby boomers will really begin aging and the numbers will increase by 30 million to 69.3 million. A positive factor that I found quite interesting is that the number of prime age workers will remain constant at 160 million. Interestingly, in 1900, there were 10 times as many children below 18 as there were over age 65. In 2030, there will be slightly more people over age 65 as under age 18.

Of course the standard problem is what do we do to support this population that will have more racial and ethnic overtones. By 2050, white non-Hispanic will decrease to 53% from 74% today. Black percentages will remain roughly the same (18%) while Hispanics increase the most to almost 30% of the population. Asians increase to about 10%.Will this mixture cause some problems? Absolutely. But my comments on any maelstrom by around 2010 is due to the haves getting more and the have nots having less.

DEPRESSION: According to the National Foundation for Depressive Illness, 15% of all self inflicted deaths are attributable to depression. The World Health Organization said that by 2020, depression will become the second leading health threat next to heart disease -up from number four now. Many people are unwilling to consider treatment because of the social stigma- "it must be a mere character flaw." According to doctors, however, up to 80% can be effectively treated.

A December article noted that people who suffer severe depression are four times more apt to have a heart attack than others. The heart attacks were probably due to the increased amount of stress that depression causes.

Depression is insidious and, left alone, it can kill.

401(K): Investors in 401(k) plans are putting 73% of their contributions in company shares (very poor choice) and into stock funds- and increase form 64% in 1994. Most of it went into aggressive funds (15.8%) up from 11.4% in 1994.

MARRIED: In 1994 about 33% of children were born to unmarried women- in 1960 it was about 5%. It's the same type of story in other industrialized countries. About half born to a married couple will see divorce. Overall, about 60% of all children will spend some time in their childhood living with only one parent- usually the mother.

Are men becoming antiquated? YES! Men were needed in the industrialized society where agriculture, manufacturing and mining required strong backs. But the service sector we are now encountering- and will encounter the next century as well- creates many more jobs that women can compete for just as easily. Since women will continue to generate more affluence and power, the traditional lines of male dominance will wane- perhaps forever. Men and women will have less to gain form the marriage pact and we therefore may never see the family continuity of the past. Pity, if just for the children. They are, and will be, severely shortchanged.

IRA PAYOUTS: (NY Times) In 1993, owners of IRA and other tax deferred retirement plans paid about $1.4 billion in penalties. As is hopefully clear, and as I have stated many times previously, the payouts are some of the most convoluted in the tax guidelines. You can withdraw for death and disability, and beginning this month, you can waive the before 59 penalty of 10% if you use the money toward a portion of the medical expenses that exceed the 7.5% of your AGI or if you have been unemployed for more than 12 weeks and need the money to buy medical insurance.

There are also many unique methods to take out the money when 70. Assume you are 70 1/2, your actuarial lifetime is about 16 years. You can simply take out 1/16th each year. Or you can use a recalculated amount. After the first year, you life expectancy is not just 15 year- it's 15.3. You can recalculate each year and extend your payments out a longer period of time.

The first has major tax advantages. If you die during these distributions, your beneficiary can continue to take the distributions over the original beneficiaries lifetime. In the later case, the beneficiary must take out all the rest of the IRA in the year after the deceased has passed away.

Frankly, when you look at the figures below, it's not worth the extra hassle to use the recalculated figures since the extra funds are rather small.

Assume 70 1/2, initial balance of $58,000, earnings of 7% and NO joint beneficiaries.

To avoid all this, simply do not die.
Method Year Balance Remaining Lifetime Payout New Balance Earnings
Fixed Life 1 $58,000 16 years $3,625 54,375 $3,806
2 58,181 15 3,879 54,302 3,801
3 58,103 14 4,150 53,953 3,777
Recalculated Life 1 58,000 16 3,625 54,375 3,806
2 58,181 15.3 3,803 54,378 3,806
3 58,184 14.6 3,985 54,199 3,794



DON'T GO TO ARBITRATION: For all those articles that talk about how securities arbitration before an impartial panel can give a fair hearing to those who have been potentially defrauded by a broker- bunk!!! As with jury trials, don't expect that people tell the truth. And as with juries, do not assume they understand the facts nor will interpret them correctly nor that they are that bright to begin with. I recently testified on a case and the last question asked by the securities panel member clearly identified to me that he had scant knowledge of the business and may have not been able to grasp the fundamentals of the case. So if you want to avoid the problem of ever going to arbitration, simple. Don't use (just) a broker to buy stocks or just about anything else. The training for licensing is woefully inadequate to address anything but the most sophomoric issues for a client. Disagree? Well, standard deviation is one of the key elements to analyze all risk/reward relationships. So is alpha and so is correlation. Are any of these taught to brokers? Wanna guess?

PHYSICIANS DIRECTIVE VERSUS DURABLE POWER OF ATTORNEY FOR HEALTH CARE: The major difference is that the first may not hold up legally while the latter will. So do the right one so you die the way you want.

GO DIRECTLY TO JAIL, DO NOT PASS GO, DO NOT COLLECT $200: A recent statistic noted that 1 in 20 people born today in the United States will spend some time in a state or federal prison.

HMO's: There are about 60 million Americans now in HMO's and another 90 million in other forms of managed care. About half of those in California- about 13 million, belong to HMO's and about 500,000 a year are joining. There is continued debate about their effectiveness in treating all people equally. A NY Times article last year noted that the poor and elderly were getting less effective treatment, as a group, than other patients at HMO's in a study that went from 1986 to 1990. 54% of the elderly HMO members reported a decline in physical health versus 28% for the fee for service members.

33% of the poor elderly reported a decline in health versus only 5% for the fee for service.

The healthy member of an HMO did slightly better than the fee for service members.

The overall report covered just 2235 that had diabetes, depression and hypertension. The number of elderly and poor in the study was only a few hundred but was still considered statistically significant.

FINANCIAL PLANNING FRAUD: The Better Business Bureau continually comments on the fraud in this industry, but it also points out the gullibility and greed of people. For example, one Sacramento planner offered people 22% on their money. That should be a tip off to fraud unless you are brain dead. Another got $1.1 million from 40 "investors for a super Rabbit (I'm not making this up) that had a superior pelt that would be sold to furriers in New York, meat that would fetch $16 a pound for South Korean Mercenaries and its slaughter would be timed to get the maximum Federal ITC credit. Talk about hare raising. (There's a pun there- work it out.)

MEDICARE: (NY Times) Congress has been trying to reduce overall medical charges but it seems they really missed one issue. Under Medicare Part B, the patient is responsible for a $100 a year deductible and 20% co payment of charges. But through a quirk of the law, it's 20% of what the hospital CHARGES, not of what Medicare approves. As a result, patients have been paying about 37% of the total payments to hospitals for outpatient services, not the 20%. And its projected to get worse, according to Dr. Shalala, Secretary of Health and Human Resources, to about 68% by 2000. And nobody is going to fix it (Clinton has already said it is legal) because they say that if hospitals can only charge what Medicare approves, then the Federal government will have to come in and pick up the extra cost. Even Medigap policies- which pays for the extra charges- are not the answer one would seek since the annual fees have been going up and up to cover for the ever increasing outpatient costs. AARP's policy just increased 25% in 1996 just to cover this contingency Actually the problem has been around for awhile since outpatient costs have been rising at a 15.7% rate since 1980 to $86.7 billion in 1994 while inpatient costs have risen only 7.8% to $212.43 billion. What to do? Well, whether you like it or not- managed care is the probable and perhaps only way to cut these costs down.

SF EXAMINER: I teach Government programs (including Medicare), Long Term Care, and about 15 others. As regards long term care, about 50% of the elderly believe that Medicare will cover long term nursing home care. ABSOLUTELY FALSE and one of the worst errors any entity can make. Medicare will cover for 20 days of skilled care for free and 80 days thereafter with a co payment of $95.00 per day. But one must fully recognize that hardly anyone ever gets covered under skilled care (roughly 95% of all people in a home are there for custodial care for which Medicare pays nothing). Even if you did get skilled care, you either invariably get better and are dropped to a lower classification- or you die. Therefore, Medicare covers next to nothing if you are put in a home- about 2% of all costs of long term care. But an author and financial planner that the San Francisco Chronicle uses-Eric Tyson- wrote an article about long term care that indicated that the elderly will get 100 days of long term care under Medicare and even an additional 100 days under certain conditions. The rest of the article showed the same incompetence. Unfortunately, many elderly and children of the elderly will feel comfort in "knowing" that Medicare will cover for one of life's worst nightmares and will therefore not do any planning whatsoever. I wrote the Examiner and Tyson. Mary Kaufman, Program Services Coordinator with the Alameda Area on Aging and having a Masters in Gerontology, wrote a detailed letter identifying all the errors. Did they print. a clarification? No. It's sad to note the limited capability in the press. Sadder still to note the problems they will cause. It's a lot easier to talk about your ethics than to live up to them.

FEE FIE FOE FUM: Not that long ago I commented upon the wide variety of fees that the industry has come up with in order to make loads seem like less than they are. They used A, B and C shares to represent what had a front end, back end or 12b-1 load. Some can convert to the other classes after a period of time. Now they've come up with more- I, T and Z. "I" may indicate institutional shares which represent larger investments and lower fees. American Express has a Y class just for 401(k) plans. Should you bother with these? NO!!!!! When it takes more time to understand the fee structure than the risk reward relationship of the investment, you simply are buying the wrong investments from the wrong advisor.

RATIONAL EXPECTATIONS: This is a new forecasting model by the Federal Reserve Board that gives a weighting to the role expectations have to fill in the economic projections. For example, as the market continues to up, the general consensus is that it will continue to do so. And once a rupture happens, then people's expectations tend to turn the other way and drive the market further south. It will be interesting to watch this over time.

ALZHEIMER'S: A study noted in the Journal of American Medical Association indicated that Alzheimer's patients can stay out of a nursing home nearly a year longer if the caregivers (normally spouses and normally the wife) is given some minimal counseling and support. And for those that got support, more than one third were less likely to use a nursing home altogether. Knowledge can be a key to all types of problems. And it focuses on the use of home health care in long term care policies.

SELLING YOUR HOME BY YOURSELF:

If you're unwilling or unable to do the above, that's why they have brokers getting 6%.

SUICIDE: Every half hour, another elderly person in the U.S. commits suicide. One in five suicides is an elderly person and this rate has risen 9% since 1980. One third are married, and one half are living with other household members. The majority are white males. Two thirds are in relatively good physical condition, have an active social life and recently saw doctors. This surprised me in that I would have expected more to be semi recluse. However, the study went on to say that what they almost all had in common was severe depression- even if only temporary. If you have never had depression, count yourself extremely fortunate. However, if you are getting older, recognize you are apt to get it so the best defense is to READ about it as much as you can and try to analyze your own situation. GET HELP if you think there is any problem at all. There should NOT be any stigma to recognizing that your "brain is not "happy" and simply may need a little TLC or medication boost to make it feel better.



FINANCIAL ILLITERACY: According to a survey by the Investor Protection Trust, less than 20% of people are financially knowledgeable.

The study found that nearly 66% of the 1,001 surveyed believed that no load funds had no fees whatsoever.

Half didn't understand that diversification reduces risk

61% did not understand the inverse relationship of interest with bond values

66% had not done any financial planning before investing

That really sucks.

IMPAIRED ANNUITIES: You may vaguely remember previous comments on impaired annuities- where the annuitant can get more money per month since they have a shorter lifetime due to some disease or poor health. Well, all the talk about smokers finally led to one insurance company to date in offering smokers greater monthly payments since their actuarial lifetime is shorter than non smokers. One must certify that they have smoked at least 10 cigarettes a day for the past 10 years. A 65 year old male with a $100,000 investment would get $904 per month versus the non smoker at $800.

WOMEN: About half the women in the world work (45%) but earn only about 75% as much as men. The primary reason is that they make up 65% of the 1 billion illiterate adults.

DOLLAR COST AVERAGING: This is putting money into an investment over a period of time. It does NOT beat investing the money all at once since that outproduces DCA about 2/3rds of the time. However, if you are investing in IRA's or 401(K)'s, you are putting in money over time anyway. In such cases, you should invest your money on the third or second to last day of the month because most of the return in a month is in the first half of the month and most of that is during the last trading day of the month and the first four days of the new month.

LIVING WILLS/ADVANCE DIRECTIVES: In the traditional living will, you indicate your desires about life sustaining measure if you become terminally ill. In a Health Care Power of Attorney- or Physicians Directive for Medical Care- you appoint another to make medical decisions for you if you are unable to do so. The Physicians Directive is particularly valid for situations when you are not terminally ill. If you do not use these people, doctors and attorneys (ugh!!) have the right through the courts to make them for you. These Directives are usually included as part of a living trust setup- but not always- so you need to check. Also be sure to use an agent who will actually handle your wishes. Remember a spouse or other family member under emotional stress may cave into the will of a doctor or other person who has THEIR interests in mind, not yours or the sick person. That's why I am the agent on some clients directives. For more information:

Legal Counsel for the Elderly, AARP, PO Box 96474, Washington, DC 20090-6474. Enclose $5.00

Choice in Dying, Inc., is a non profit organization at 200 Varick St., New York, NY 10014-4810, 800 989-WILL