MOODY'S REVIEW

APRIL 2000

COMMENTARY ON INVESTMENT AND PLANNING ISSUES

ERROLD F. MOODY JR.

MASTER OF SCIENCE IN FINANCIAL PLANNING

LIFE AND DISABILITY INSURANCE ANALYST

REGISTERED INVESTMENT ADVISER

WWW.EFMOODY.COM

ETHICS. From An agent's Legal Responsibility" by Ronald Anderson, National Underwriter noted that there are "three elements of professionalism: 1) altruism or service before income, 2) knowledge beyond that readily available to the public and 3) ethics and self discipline by peers.

As regards altruism- it is a question that has confronted the commission driven activities for years and there is little the industry can do to negate the conflict of interest problem. That said, it is not fair to suggest that all people that get commissions are acting in bad faith against the best interests of the client. Of course, many suggest fee only planners but then we come to a conundrum- they may not know very much.

That's the second issue identified- specialized knowledge. As stated repeatedly in my article Who Can You Trust, using just  a "licensee" is almost a complete waste of time. Further, while advanced designations do indicate further knowledge, literally all the organizations let members pick and choose what they want for education . And very rarely is insurance any element at all-, it's almost exclusively investments. Such members (and consumers) usually state they don't like or want insurance. Sorry- financial planning is not necessarily what you want to do or would like to do. It is what you need to do for yourself and your family. In such context, one MUST review (as a minimum) the elements of long term care, estate planning, medical insurance, medicare, medicaid, physicians directives and, as necessary, viatical and life settlements. Therefore, if you are in California and your planner has not attended the 8 hour mandatory course in long term care as identified by the California Department of Insurance, I'd suggest you run away. That includes whether the person is working on a commissionable basis or, more specifically, as a fee planner since fee planners may rarely address risk management competently, ethically or legally. If you are in other states, a background in long term care is also needed and you may have to find one that has taken additional courses. Obviously if you are 35 years of age, the issue can be seen as relatively moot. That said, your parents and grandparents may be directly impacted and the knowledge by the planner is still necessary.

The third issue addressed is the presence of ethics and peer group discipline. I wont't bore you with all that I have written previously, but the entire industry does NOT enforce ethical violations. As the attorney for the CFP Board of Standards indicated directly to me years ago, the Board will NOT enforce ethical violations unless preceded by a legal one. In other words, unless you have been found guilty in a court of law, you are essentially free to commit almost any unethical acts you desire with relative impunity. A past Board president even said, in a meeting with California officials in regards to CFP's non compliance with the law said, "so, what's the big deal?" What about the SEC, NASD and the Departments of Corporations and Insurance? Of course you will see some agents/brokers fined and sentenced but that is nothing more than the tip of the iceberg. It is always caveat emptor.

INFLATION: From a journalist at Investor's Business Daily- "Do you think the fears over inflation we keep hearing about are well founded? Is there evidence to suggest that we will indeed see a significant increase in inflation in the near-term."

So is inflation a problem per se? No- as long as the FED stays vigilant. That is not to say that the FED will not raise rates some more in the near future, but I do not see another massive adjustment to either rates nor inflation. That said, is inflation an issue to be aware of on an ongoing basis? Yes. The U.S. economy has been most fortunate with increased productivity but it will not last forever nor will the market's upward historical climb. We WILL be impacted again by various problems within our economy and it pays to be vigilant at all times. If one becomes complacent, your investments will suffer."

His next question-"Are there really inflationary fears among investors that you know of. Sure, the Fed seems to talk a lot about "real or imagined" fears in the market. But some I've talked to suggest that the only one imagining these fears is the Fed itself. They suggest that investors are only afraid of inflation to the point where the Fed is afraid enough of inflation to raise rates. Assuming that makes sense to you, what's your take on that?"

My answer-" Inflationary fears are well founded even if one thinks that the entire past history of statistical evidence of the stock market and economics has changed. For example, I am well aware of the Phillips curve, etc. and the fact that the low unemployment rate "should" have been almost an instant precursor to higher inflation. Or the dismal yields on stocks was a "perfect" precursor to a bear market. And on and on. But as much as technology may have made adjustments to market and past thinking, I am not of the mind that every single concept of the past 50 years is no longer valid. I submit, and per Greenspan's remarks, neither does he nor the FED. However, it's premature to know exactly which issues have changed forever and which may simply have a "reversion to the mean"- revert to previous statistics.

Normally those people who say that inflation- or some other issue- is only in the FED's head are those that have never read material from the FED. Or even if they tried, they have such little background (and interest) in economics that they can't understand the implications at more than the most superficial level. These people are NOT investor's. Very, very few people understand the most rudimentary basics of investing (diversification for example) and offer miscellaneous commentary about their proficiency of grasping the marketplace that has nothing more to do with the fact that the market went up- not due to their competency in understanding what was going on. Such people are- and should be- concerned about inflation when the FED is concerned and for good reason. The FED is not made up of stupid people. That does not mean that they are perfect in their analysis nor that every move they make will cause the exact reaction they had hoped. But if someone is suggesting that we have "joe six pack" do an economics analysis for inflation, that's stupid. So maybe we use the president? (Chuckle) Or Oprah Winfrey, Michael Jordan? The independence of the FED and the inherent capability of such individuals within the FED cannot and should not be discounted by people who, again, don't get the reporting material from the FED. Most of FED's personnel have far more understanding of the nuances of the U.S. and international economies than the average person will ever comprehend (myself included.).

Unfortunately, by the time the news programs talk about inflation, it looks like the FED has just then made up a problem about the economy and perhaps is overreacting. Astute readers would have found an insight to the issue (through statistical info, reports, graphs, etc. from the FED that is available to the public) where one would have seen various trends developing.

In essence, investors READ and offer/provide/utilize cautious competent advice based on research and analysis. People who don't read the material necessary for comprehensive analysis (the bulk of the U.S. public) are the first to offer emotional commentary on short term positions that clearly gets sound bites. Of course they are right sometimes but it may be due to little more than the odds of flipping a coin. The FED, on the other hand, takes a long term view of our economy that all true investors need to recognize and respect. As stated, they are not always right, but I don't know who or what else I would like managing our economy."

"It matters not whether you win or lose; what matters is whether I win or lose."

Darrin Weinberg

GAS: CO2 concentrations in the atmosphere have increased 30% since oil was discovered in the 1800's. 

BABY BOOMER REPORT CARD: From a journalist- "If you could design a financial-planning report card for Baby Boomers (with subjects of your choice), what grades would you give and why?"

First we need a Definition of baby boomer regarding fiances: We need to provide some starting point in terms of assets at retirement. I will assume- unless otherwise stated- that we are dealing with a married couple, good marriage, couple of kids, assets of at least 1,300,000 NET (all assets included including house, stocks, retirement accounts) and a "standard" actuarial lifetime of roughly 20 years after age 65 (though more like age 80 for men and 84 for women- but one tends to use a fudge factor unless health conditions do not permit).

My answer-"As regards investments, I'd say that many have become more educated in the subject area and are learning to invest with more knowledge than ever before. By the same token, a little knowledge is dangerous and perhaps no more than 1% of all baby boomers know the fundamentals of investing (alpha, beta, correlation, diversification, standard deviation, Sharpe Ratio). They have simply put money into the market because the market has risen so precipitously. Statistically they have done well during the last 5 or 10 years, but appearances are deceiving. Even fools have looked good in this stock market. Further, many are fools even given the great market since they have bought when they should have sold (and vice versa) and many are still trying to time the market. That is clearly identified as a problem with studies by Barber and O'Dean of the University of California that indicate "investors" trade so much that their returns underperform the market by 2% to 3%. This is mostly noted with men and has been exacerbated by the ability to trade on line. Say what you will about brokers- they usually tend to have their clients stay the course rather than trade willy nilly. As an additional comment, one needs to recognize that women have come a long way with investing the last few years (though are still too conservative) and need to be given credit. Nonetheless I still offer nothing more than a grade of C+ to B-. And depending on what happens with the next true downturn, the grade could drop.

Estate Planning- you still have the majority of people who have not done a will- never mind the more sophisticated opportunities like a living trust (actually your basic trust is fairly mundane- it's just a great management tool.) Most of the problem exists with men since it is not an issue of when they should die, but IF they should die. As Edward Young noted,"All men think all men mortal, but themselves."

Even when "proper" wills and trusts are drawn, I would estimate that at least 75% of all wills and trusts in the United States that provide for several children are drawn so incorrectly that a lifetime of resentment and anger will result- both to siblings as well as to the deceased parent. (Very simple. You want equal amounts to go to your children. So your daughter gets a life insurance policy of $100,000. Your son gets your 401(K) with $100,000. Is that equal?? Not even close. And when one also has other assets such as real estate, annuities, mutual funds, IRA's, ROTH IRA's- each with different lifetime income tax positions and different death treatments, the problem is compounded. The results can cause unbelievable animosity lasting for generations.) The public doesn't know the problem but since they select attorneys who have little understanding of accounting basics, who is to really blame? The attorneys who mess up because they do not know how to use a calculator? Or the public who don't do enough scrutiny to find qualified attorneys? Grade of C since having a will or trust is better than nothing at all.

Insurance- most people buy the wrong type of insurance, assuming they buy anything at all. More likely, they are sold insurance they don't need and cannot use effectively (standard cash value policies). They don't understand how they work or for what purposes or the fact that most baby boomers may be taxed up to 55% on their life insurance proceeds. Here is a simple example: Assume you own nothing more than a $1,000,000 life insurance policy when you die. It goes to your son. How much will he get? $1,000,000? Nope! So, how much? $874,700. Ask this of literally all consumers and almost all agents and you get the wrong answer- if any answer at all. The public has a right to be concerned about the incessant sale of product by agents of limited skills (state licensing is woefully deficient.) Even for those that seek fee only planning, the results are invariably not that much different since such advisors usually have no license at all, maintain no minimum continuing education in the subject and have even less interest. Again, since consumers do little homework in the selection of advisors, they can't exclusively blame the agent. Grade of D. All that said, it is better to have some type of insurance versus nothing at all if you have anyone financially dependent on you. But buying the wrong thing from people who don't care or don't know is inexcusable.

Long Term Care- this is a relatively new product that gets a decent amount of press. But, like life insurance, people do not like to think of their own demise or illnesses and frailties. Recent statistics indicate that only 7% of the elderly have bought long term care products. Grade of D.

Retirement- this actually includes all the items listed since all elements of planning are incorporated prior to and during retirement. Unquestionably the number of magazines- and most certainly the Internet- has provided a knowledge base hundreds of times greater than what existed 10 or 15 years ago. That said, they seem to all come out with something entirely different each month or quarter for the recommendations. Buy this stock or funds this month, buy that stock or funds next month, ad infinitum. The problem is that it is very difficult to weed out the extraneous info. And consumers invariably don't have enough background to know the difference nor rarely will they pay for outside assistance. So, overall a grade of C."

BUYING ANYTHING "INTERNET". (NY Times) "Investors can be forgiven for embracing the Internet, because it is, indeed, changing the way things work. But people rushing to whatever.com are forgetting a cardinal rule of investing: Making money from world-changing events is tricky at best.

Warren E. Buffett, in an early 1999 question-and-answer period , noted that two industries born in the 20th century had changed the course of history -- airlines and autos. But while they are wonderful businesses, Buffett said, they have proven to be lousy investments."  

NOT VERY ENTHUSIASTIC: A recent graduate with a Master's in Finance asked my opinion of joining two of the nations's largest "planning firms" after reading my article Who Can You Trust.  My reply

"I wish I had something beneficial to say. But such companies are designed to sell a product- many times non beneficial to the client. I know both these companies and have had several reps contact me who have worked with them. Not enlightening. Some have stated that what I have taught is effectively 180 degrees opposite to what they want sold- primarily variable annuities and insurance which have high commission tickets. That's not to say that all their work is bad- the same as saying that everything I do is the best. But their efforts are not to get knowledgeable agents- simply those that accept their "education" and do as they suggest/demand. The reason I say demand is that unless you sell so much product, you are "gone."

Nonetheless, I don't know where else you can really get the experience you need. And as far as being trusted- that can be easy. If you have a way with people and are gregarious, people will trust you- though for all the wrong reasons. As you have read in my article, that has nothing to do with knowledge and doing the right thing.

Perhaps you can remain objective with these companies and still retain your knowledge/ethics- but it won't be easy." 

EXERCISE (AP Oregon State University): "getting nonexercisers off their couches begins with getting them to put exercise on their minds. Surveys show 20% to 25% of Americans get no exercise, and another third get too little to improve their health. The numbers don't change much from year to year, despite a stream of scientific discoveries on the health benefits of doing at least some physical activity. Even people who would be expected to pay attention don't." 

"Facts are stupid things."

Ronald Reagan

DON'T EAT BUGS: (Kansas State) A microbiologist says bug zappers and food should be kept apart because while they are killing insects, the devices can spread bacteria or viruses up to six feet away. "I think it means we should not use bug zappers in certain areas. It shouldn't be hanging above the condiment tray at your picnic. You might be careful having a bug zapper in areas where small children's toys might be."

LIFETIME: If you are now 65, you have a 41% chance to live to 85.

STILL WORKING: In 1998, 1.8 million over the age of 70 are still working. Some, obviously have to, but many want to to stay active and social.

"Boys will be boys, and so will a lot of middle-aged men."

Kin Hubbard

POVERTY (World Bank) - The number of people living on less than $1 a day appears to be rising and will reach 1.5 billion by year's end .The bank said that while 1.2 billion people lived on less than $1 a day in 1987, this figure had risen to 1.3 billion by 1993. In Indonesia alone the proportion of people living on under $1 day rose to 19.9 percent in 1998 from 11 percent in 1997, implying 20 million newly poor. The bank's criticism implies that the rescue packages for Asian and other countries hurt the poor disproportionately.

NOT MOVING: In a 1996 survey by AARP, 8 of 10 Americans 50 or over said they wanted to stay in their own homes and never move.

HOME: (U.S. Department of Labor) Home-based businesses can be found in 6.1 million homes and other residences--accounting for 6% of all U.S. households.

COCAINE USERS (Beth Israel Deaconess Hospital): "The average age of people in the study who suffered heart attacks soon after using cocaine was only 44." "That's about 17 years younger than the average heart attack patient.

"The purpose of life is to fight maturity"

Dick Werthimer

UNDERWRITERS: According to A.M. Best, "inadequate pricing has been the leading cause of impairment for both life and health insurers."

SUICIDE: The suicide rate for officers is 22 deaths per 100,000, according to the Fraternal Order of Police, while the national rate is 12 per 100,000 people, according to the Centers for Disease Control and Prevention. Studies show that more police die from suicide than from violence.

ARBITRATION: Bad News- at least as far as arbitration is concerned for consumers. A friend of mine is leaving the representation of clients in arbitration for several reason- but one of them is the fact that he feels (as do I in large measure) that clients do not necessarily get the best treatment in some forums. Case in question- an ex judge who is the arbitrators chairperson carries on an ex parte communications with the defense attorney- who's firm he says, on record,  has never lied to him. (Even if you do believe it, you sure don't make a statement like that and put it on tape!) Unbeknownst to him and only known later by the plaintiff's attorney, the defense attorney had been recently barred by the SEC. But it goes on. The judge carried on a light flirtation with the defense's other attorney. Having enough, the plaintiffs asked for the judge to recuse himself. He wouldn't. They (obviously) lost the case and are asking that the decision be vacated.

Unique and unusual situation? Yes. Unparalleled? Nope. I have seen arbitrators not having a clue to securities issues. There is (maybe) one out of one hundred that understands diversification. And unless a broker and the firm recognize diversification, then literally no investment can be considered suitable. Of course some (many) will work, but it's because of luck and extra risk, not knowledge.

Want to avoid arbitration? Scams?   Most lost money? Simple. Either you and/or your adviser must fully comprehend alpha, beta, correlation, diversification, Standard deviation, Sharpe ratio and a few others. It's fine if you don't want to use a broker. But that means you have full understanding of the fundamentals. Do you?

BANK OFFERINGS: I had one Email reply recently regarding my opinion of bank offered investments, insurance and annuities that said I was a moron, etc. for ever even remotely stating that Bank reps were doing the wrong thing. Well, it's just not that they are (possibly) doing the wrong thing, but that they haven't been trained to know what to do, knowledgeably and ethically, in the first place. I personally know of situations where the uninformed bank customer is being led into products they are simply sold for the commissions. For that matter, think of Lincoln Savings and Loan.

However, from a subsequent Email came this commentary from a bank rep: "I could not agree with you more. The pressure that banks are currently putting on their poorly-trained employees to push these variable annuities is appalling. I am currently working for a bank and I am sickened by what I hear and see. There is not even a PRETENSE of being concerned about what is best for the customer! It is only greed. And the employees that they have forced to get insurance licensed are only being compensated a .025% I am seriously considering quitting this job just because I feel what they are doing is so unethical."

VARIABLE LIFE AND COLLEGE FUNDING: A question from the Orange County (CA) Register

"Q. Is variable life insurance a good investment if you're trying to save money for college?"

"Answer: I think "investors" simply need to pay more attention to what they are buying. I mean, really, what part of the words in "life insurance" don't you understand? You are buying LIFE INSURANCE with an equity kicker and any internal return of the mutual fund is going to be at an extra and higher cost than investing directly on a personal level.

For example, an index fund might work very nicely given the number of years needed till college. Effectively no current taxes and all gains- when gifted to the child later on- are taxable at long term capital rates- perhaps just 10%. Some might suggest a Uniform Transfer to Minors Act. In both cases, statistically, there will be more money than in using a variable life insurance product. But with a UTMA or UGMA, you have actually transferred permanent control of the assets to the child. What happens if they grow up to be Devil's own disciple and take the money to buy a jet ski? Nothing you can do about. That's why neither is particularly viable.

If you are a parent, consider an Education IRA where the proceeds will not be taxed at all (though limited to $500 per child per year). Even the use of a regular IRA allows distributions for college and there is also the HOPE Credit (though you cannot combine all benefits during the same year.)

Certain states have College Tuition Plans that "guarantee" all or part of tuition and may be worth reviewing. But the plans vary consdierably.

Consumers should almost always utilize an investment separately and consider a form of indexing- certainly if they are novices (and even otherwise). If life insurance is needed, buy it separately and cheaply. Don't buy variable. It's use is extremely limited and is certainly not justified for college funding. It's use, however, is particularly viable for the agent who can take the high commissions and send THEIR kids through college."

IS THE PARTY OVER? Rising rates can kill the market- though I don't think it will. But here are some comments from a NY Times article if you wanted to hedge your bets: "Eric Sorensen of Salomon Smith Barney examined the performance of 60 industry groups during five different periods of sustained rate increases in the last 22 years. The top-performing groups were the oil-and-gas drillers, which beat the Standard & Poor's 500-stock index by 27.6 percent; the oil producers and sellers, which outperformed by 25.4 percent, and computer software and services companies, which beat the index by 23.7 percent.

Losers included shares of home builders, which underperformed the index by 27.3 percent; trucking companies, which fell 26.6 percent more than the S&P., and engineering and construction firms, which lagged by 25 percent."

What I thought more interesting was the comments of Charles W. Peabody, a bank analyst, who believes that the combination of rising interest rates and the hefty leverage on the books of banks and mortgage lenders could prove hazardous to their stock prices, "because they are the most exposed to interest-rate-related products such as swaps and mortgages."

(That was written in June of last year but the comments seem appropriate to this scenario)

403(B):  (NY Times) "While more than two-thirds of 401(k) money is invested in stocks or stock funds, half of 403(b) money is sitting in fixed annuities. Such investments often return little more than bank certificates of deposit." What's perhaps more interesting was a research fi rm's note that "Only about two in five public school teachers even have 403(b) accounts." According to Spectrem Research,  about two million public school teachers have about $116 billion in 403(b) plans  while employees of colleges, universities, private schools, charitable organizations and nonprofit hospitals have $350 billion in 403(b) plans."

CLEAN SHEETING: "Clean sheeting (Wet Paper) takes advantage of the fact that some life insurance companies do not require physical examinations on cash-value policies of $100,000 or less when the application discloses no significant medical problems and the applicant is relatively young.

LONG TERM CARE: Many veterans may believe that full care is offered by the VA. Not necessarily true. "Veterans who have a service-connected disability are given first priority for nursing-home care. Moreover, VA-authorized care normally may not be provided in excess of six months, except for veterans who need nursing-home care for a service-connected disability or veterans who were hospitalized primarily for treatment of a service-connected disability."

IRA (NY Times) Regarding I.R.A. owners who die before they must take their first payouts.  Tax lawyers had been advising clients that payouts to all heirs had to be based on the life expectancy of the oldest heir. But in a new private letter ruling, each heir may use her own life expectancy to determine the rate at which money must be withdrawn and taxes paid on the withdrawals.

Consider this: You had two beneficiaries, age 40 and 15. Prior law required that distributions for both occur over the expected lifetime of the oldest. Now, each distribution occurs over an  individual actuarial lifetime and can provide enormous growth to the younger.

STOP DRINKING!! Remember those "studies" that said that a drink or two was beneficial? Well, a study of 5,766 men in Scotland (seems appropriate) over 21 years showed a strong correlation between mortality from stroke and alcohol consumption.

SOMETHING TO LOSE SLEEP OVER (AP): The brain clock that regulates sleep works as accurately for the old as for the young, suggesting that many theories about insomnia among the aged are flawed." One researcher noted-  "We are going to have to rethink all of the explanations we have been giving for insomnia."

LIVE-IN, 24-HOUR CARE: A very popular, cost-effective program designed for those who need more than 8 hours of care daily, but where three 8-hour shifts are too much. The Live-in Caregiver is on call 24 hours a day and provides the client peace of mind, knowing that someone is present if they need help. (Live-In Care: $90-$120, depending on location)

Overnight: 12 Hour Shift with Sleep This twelve-hour shift is for those who need assistance going to bed and getting up in the morning. The Caregiver is able to get up with the Client if they need assistance once or twice throughout the night. (Overnight Care: $57-$80, depending on location)

Hourly Care Professional customized care for those times when it is needed the most, from 4 hours to 24 hours per day. (Hourly Care: $9-$13 per hour, depending on location)

LET'S BE CAREFUL OUT THERE. (Red Cross) "Global warming, environmental degradation and rising populations are likely to increase the frequency and severity of  natural disasters. 1998's overall natural disaster bill was more than $90 billion"

TECHNOLOGY: "A Commerce Department study concludes that the digital world is driving the nation's economic growth, holding down its inflation rate and transforming the American workplace. Information technology industries accounted for only 8% of the nation's total economic output from 1995 to 1998 but contributed more than one-third of its economic growth, the report says. By 2006, it projects, almost half of U.S. workers will be employed by industries that produce information technology or are intensive users of it."

That's the basic reason why I think many large companies may be able to compete very favorably with smaller rivals. Technology and the computer enables literally all companies to utilize technological changes quickly. They are not the slow laggards of the past.

That does not mean, however, that the valuations of many tech companies is valid.

IT'S WORKING- "The Department of Health and Human Services reports that 1.5 million paternities were acknowledged in 1998, compared with 1.3 million in 1997 and 512,000 in 1992. The 1993 law requires states to ask unwed mothers and fathers to declare paternity at the hospital when their children are born."

BANKRUPTCY AND WOMEN: (Elizabeth Warren) "Women are the fastest-growing group declaring bankruptcy, surpassing men and married couples in total numbers, new data shows. Women accounted for 39% of bankruptcy filings in the 12 months ending early 1999. Warren blames divorce for the trend. "If a woman is divorced, she is 300% more likely to file for bankruptcy."

Golf teaches that even people who wear green pants deserve some place where they can go, get a little exercise and not be laughed at.

HEARING: Hearing impaired people who do not use a hearing aid are more likely to suffer sadness and depression; anxiety and and worry;  paranoia; reduced social activity and emotional turmoil and insecurity.

BABIES: After women got mad a few years ago, the numbers of women staying in a hospital one day or less fell to 25% in 1997 from 37% in 1995.

HEART DISEASE AND CANCER: Two thirds of heart attack victims survive at least one or more. Almost 59 million Americans are living with some form of cardiovascular disease

Over 8 million Americans alive today have some history of cancer (I have had skin cancers for years and am therefore predisposed to die from cancer)

There are 4,000 heart attacks a day

3,000 are diagnosed of cancer per day

2,000 stokes per day of which 50% survive 5 years of longer

The are 4 million stroke survivors today.

If you keep your head when all about you are losing theirs, It's just possible that you haven't grasped the situation

Jan Kerr

A FARCE- "SEC Chairman Arthur Levitt has directed the NASD to develop rules requiring brokers to disclose to clients recruitment incentives as well as special payments for selling proprietary products. The NASD is also considering a rule that would ban single-product sales contests." My point is that the SEC/NASD have never required any broker to inform consumers that they have not even been taught the fundamentals of investing. Sure, the extra incentives are a problem. But looming overall is an intent by the governmental organizations and the broker firms to deceive the public into the perception of competent brokers while all the time NOT even knowing the most fundamental numbers of diversification.

ANNUITIES: Jane Bryant Quinn normally writes some decent stuff but her article on annuities missed some key elements. Namely whether the return on an annuity is worthwhile to begin with. The focus of the article was primarily how to get income for life. Wrong! It is the easiest thing to get income for life. Give me a dollar and I will give you income for life- maybe a penny a year. And that's the problem with annuities- unless someone does the numbers, getting a 3% return on your money for your life is ludicrous. Couple that with the fact that, in almost all scenarios, you give up control of your money permanently. Now, some companies do allow you to get to your principal- but at a penalty. But what does the penalty do to your ultimate return needs to be analyzed.

She does say that variable annuities can pay more. True- assuming the market keeps going up- and the reason people still buy these. But the cost to run the annuity is may be 1.5%. Add in the extra fees on the mutual fund and you may well be over 2% more than a regular index fund. Now take that 2%, say on $100,000 of an index fund, and look at how much you would have extra in 10 years. It equals an additional $21,899. So is it worth it or could you have done better just buying an index?

Obviously it is not as simple(?) as I have made it here. The point being, it sure isn't as simple as she made it. There is a lot of work and research necessary before you ever buy an annuity for retirement purposes.

PIG: (Dick LePre)- "Understand clearly that I am sure that I know next to nothing about where the stock market is going. The only observation that I would make is that this is certainly not a bear market but it is something other than a bull market. This is a "pig" market. It has been fueled by greed far in excess of tradition. People who have never participated in the market are in it now and they expect a 10% return per week."

"In a few minutes a computer can make a mistake so great that it would have taken many men many months to equal it."

POVERTY: A family of 4 is considered poor if they earned less than $16,400 in 1997. In 1997 , there were about 5.2 million poor children including 2.5 million who were extremely poor- living below half the poverty line. Overall, the percentage of children under age 6 who were poor dropped to 22% in 1997 down form 23.2% in 1996. Since 1993, the rate of young children in poverty has fallen 16% after rising 52% between 1978 and 1993.

"Someday I want to be rich. Some people get so rich they lose all respect for humanity. That's how rich I want to be."

Rita Rudner

SUICIDE: Every 100 minutes a person younger than 24 commits suicide. Over the past 35 years, the youth suicide rate has tripled.

BONDS (Federal Reserve) At the end of 1988, households owned $447 billion of the $1.271 trillion in municipal bonds (excluding money market instruments) while mutual funds owned $305 billion. But individual holdings have been dropping precipitously since 1990 while funds have been owning more since 1985.

1999 RETIREMENT CONFIDENCE SURVEY 5 character traits: planners, savers, strugglers, impulsives and deniers. My comments are offered immediately after

Planners -- About 35 percent of Americans. They believe their retirement can be comfortable. They'll take risks, and about 75 percent think they're investing wisely. They have median retirement savings of $73,000. (About 95% of the 75% would not know the definition of diversification. They think they are wise but it is simply because the market has gone up thanks to Greenspan. It's a good thing they have money because they can get hurt horrendously when the market drops)

Savers -- About 18 percent of Americans. They're similar to planners, but are more cautious investors. Less than half take financial risks, regardless of the gains, and see themselves as savers rather than investors. (Saving is good, but considering the longevity we now have, investing is almost a necessity).

Strugglers -- About 20 percent of Americans. They're disciplined savers, but get discouraged by unexpected events. About 94 percent consider themselves savers, rather than investors. (Unexpected events are part of the investing "game". They need to read more in order to best utilize the money they do have. It can be done because that is what I do for clients in literally any category.)

Impulsives -- Fifteen percent of Americans. They're sporadic savers and are often set back. More than half spend without planning to buy anything. (Limited ability to help unless they try to read more and convert to being a "struggler".)

Deniers -- Thirteen percent of Americans. They think retirement planning is pointless. They're impulse shoppers, are frequently set back in financial goals and are unwilling to take financial risks no matter the gain. They have average retirement savings of $7,000. (not much you can do here since educational material will never meet their eyes.)

CASH: Over the last 70+ years, cash hasn't even returned 1% more than inflation.

"As you journey through life take a minute every now and then to give a thought for the other fellow.

He could be plotting something."

Hagar the Horrible

FED: Greenspan said that growth was on an "unsustainable trend," and warned somewhat ominously that the excesses of human nature have brought all expansions to an end. "When we can be pre-emptive we should be, because modest pre-emptive actions can obviate the need of more drastic actions at a later date that could destabilize the economy." That quote was also from 1999 but is almost exactly the same as recent.

LONG TERM CARE: According to the U.S. Census Bureau, Americans 85 and older are our nation's fastest growing age group. The statistics show that from 1960 to 1990, this age group increased by more than 200 percent, and projections show that by 2050, the 85- plus population will increase six-fold from its current size. Rep. Anne Northup noted that "Over the years, Medicare and Medicaid funds have been used to aid individuals in accessing long-term care. These funds have created unreal expectations regarding the federal role and capacity for filling this void, and left huge gaps in meeting long-term care needs and costs. According to the Health Care Financing Administration, the federal government covers 77 percent of all nursing home care expenses received in this country, compared to the 23 percent covered by private pay or other sources."

There are good long term care policies costing about $1,000 annually at age 55 to 60 and 2,000 from 65 to 70 (depends on the bells and whistles involved- inflation riders, cost of living factors. California residents can get a 20% first year discount on policies.) Recognize this however, the HEALTHIER you are the MORE (statistically) you will need long term care. In about 20 years at a 5% inflation factor, a $50,000 current annual cost for LTC will approach $135,000 per year. Have you budgeted for that? Do you expect Medicare or Medicaid to pay for it? Get real!

AGE 100: "80% U.S. centenarians are women, and Iowa, then South Dakota had the highest percentage of residents in their 100s. The 1990 Census counted 37,306 people aged 100 or over, and the bureau estimates that number has risen to about 70,000."

ACCELERATED DEATH BENEFIT There were 39.9 million individual policies or group certificates that included an accelerated death benefit (ADB) as of December 31, 1997, compared with 18.1 million in 1994.  Normally you need to have:

Diagnosis of a terminal illness or physical condition for which death is likely to occur within a specified amount of time

Occurrence of one of a number of specified medical conditions ("dread diseases" or catastrophic illnesses) that would result in a drastically limited life span without extensive or extraordinary medical treatment

The need for extended long term care in a nursing facility, at home, or in the community due to an inability to perform daily activities

Permanent confinement to a nursing home. 

Insurance companies indicated that death must occur within 12 months or less from the time you apply to have your benefits accelerate. And about one in five (21 percent) require an even shorter life expectancy -- six months.

"Dread disease" is usually defined as heart attack, life-threatening cancer, stroke, coronary artery bypass surgery, and kidney failure. A scant few companies include a major organ transplant, AIDS, paraplegia, and the loss of limb or eyesight.

Normal industry practice is to limit ADB to half of your policy's full amount.

DNA: (AP) "For the first time, doctors have injected genetically engineered DNA into heart muscles to help restore blood flow to clogged arteries by using a catheter without any anesthesia. Until now, the gene was injected into the heart during a two-hour surgery that required general anesthesia and several days of recuperation. The new, minimally invasive technique will eventually allow patients to go home an hour after it's completed, doctors say. It could also be a safer alternative to bypass surgery or angioplasty for high-risk patients."

YOUR BRAIN: It takes six hours for your brain to store permanently a new skill it learns. If you interrupt the storage process, what was learned may be forgotten. Researchers don't know if attempting to learn any new skill interferes with remembering the first (taking a tennis lesson after a piano lesson) or if only a new skill related to the first will interfere (trying to learn two piano pieces).(Or how to cast a fly while chewing a new stick of gum.)

COLLEGE: College attendance at any time among all high school graduates ages 18 to 24 reached a record high of 45% in 1997. Among whites, the figure was 45%, up from 41% in 1991; blacks, a record 40%, up from 32% in 1991; Hispanics, 36%, vs. 33% in 1994.