MOODY'S REVIEW

DECEMBER 1996

COMMENTARY ON INVESTMENT AND PLANNING ISSUES

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

CERTIFIED FINANCIAL PLANNER

REGISTERED INVESTMENT ADVISER

______________________________________________________________________________

WWW.EFMOODY.COM

After months of unbelievable screwups with my computer (New ACER 133 with FOUR hard drives, A drive, Case, CD Rom, Tape Backup Drive and Controller card and Modem all bad in a period of four months.), I have finally been able to set up my own WEB page. It will incorporate much of what I have written (by 1/97) for various classes the last 10 years separated into individual categories- long term care, investments, insurance, estate planning, etc. You will find these Newsletters for the past two years plus at least 700 other pages of material. So, if you are online, take a browse. Tell your friends as well. They might learn something. If you have any comments, please let me know. You can Email to EFM@EFMOODY.COM

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TAX TREATMENT OF LIFE INSURANCE PREMIUMS:
Deductible at payout Income to Employer/Insured/ Owner
Group Term Life yes over $50,000
Key Person no no
Buy/sell no no
Stock Redemption no no
Section 162 Bonus yes yes
Split Dollar no possibly
Qualified Retirement yes possibly
Divorce Settlement possibly possibly
Other personal use no no

 

WOMEN: Oppenheimer company reported that in its study, 66% of women versus 44% of men said that investing was too complicated. Quite a discrepancy unless you recognize that most men would never admit that they don't know anything about investing. (Ask them- how many stocks must you have in a portfolio in order to insulate it to unsystematic risk? If they can answer that, they probably know investing. Otherwise it is the testosterone and ego talking.)

Married or widowed women retiring in the next 20 years will have less than 1/3 the income to retire comfortably and single women will have only 1/4.

On the plus side, however, is the fact that there are a greater number of bachelor degrees awarded to women than to men. About 23% of current women age 25 to 34 have bachelor degrees versus 20% of men. The National Center for Education Statistics expects that women will earn 55% of all bachelor degrees in the next decade.

I have said it before- by the year 3000, women will rule most of the world (assuming men don't destroy it by then).

AGGREGATION: More on annuities. All annuity contracts by the same company to the same owner are treated as ONE contract for the determination of the taxable portion of any distributions. Exceptions include

DRINKING: The National Council on Alcoholism and other Drug Addictions suggested these do's and don'ts's for the friends and families of alcoholics

DO:

Talk to someone who understands alcoholism

Learn the facts about alcoholism

Develop an attitude to match the facts

Go to Al Anon and/or seek professional help

Learn about yourself, your needs, desires, reactions and behavior patterns

Maintain a healthy and consistent atmosphere in your home as much as possible

Share your knowledge with others

Be committed to your own growth, health and life goals- be constructively selfish

DON'T:

Preach or lecture to the alcoholic

Make excuses for the alcoholic

Make threats you won't carry out

Believe you are the cause of the other person's alcoholism

Suffer for the alcoholic

Protect the alcoholic from alcohol or drinking situations whether drinking or in a program of recovery

Make an issue over the alcoholic's choice of treatment

Rescue- let the alcoholic clear up his/her own mistakes and assume the responsibility for the consequences of their behavior.

PROSTATE CANCER: Check if :

About 300,000 men will be diagnosed with prostate cancer versus about 185,000 women for breast cancer.

LIVING WILL VS HEALTH CARE DIRECTIVE: Living Wills may be effective only in cases of terminal illness. A Health Care Directive is more encompassing and covers just about all medical situations- assuming that the agent you select and the physician taking care of you will apply your requests as indicated. The Health Care Directives are legal in every state though they are apt to take different forms. Check with your local hospital, AARP office or Choice in Dying at 899 989-WILL. You can change your mind at any time. You should ask yourself

1. What are my goals for medical treatment? What do you want to happen if you are disabled or at the end of your life.

2. Who will you select for an agent? This is crucial. If it is a close family member or friend, will they be emotionally strong enough to carry out your wishes? You don't want a physician or other "outsider" swaying these members to do something you did not want to have happen. Perhaps someone slightly removed from your personal situation might fight for your legal rights more convincingly.

3. How Specific should I be? Look at the next page. It's from the Veterans Hospitals several years ago but seems applicable as a guide today.

4. How can you be sure your wishes will be carried out? Well, nothing is 100%, but the more clear and detailed you are about your wishes and the more "forcefully" your agent can present them, the better your chances. Remember, it's your life to live and your death to die. Don't let others bully you into doing something you don't want to do.

Addendum to Durable Power of Attorney for Health Care

LIFE SUPPORT

Yes No Maybe ____ ____ ____

Pacemaker- any device that substitutes for the normal heart beat

Peritoneal Dialysis

Kidney Dialysis- alternative means of filtering poisons from the body when the kidneys fail

Respirator- breathing machine attached to a tube inserted into the lungs through nose or mouth.

Cardiopulmonary resuscitation (CPR)- intervention given by man, machine or drugs when the heart and/or lungs stop working.

LIFE PROLONGING OR LIFE SUSTAINING PROCEDURES

Feeding tube for food or fluid- a tube placed into the stomach or bowel to give fluid and/or nutrition

Hypodermoclysis for nutrition or fluid- placing fluid under the skin outside a vein with a needle. The body will absorb the fluid.

Intravenous (IV)- tubes for feeding and hydration

Antibiotics- to treat pneumonia or any other infections

Cancer Therapy/Radiation- X-ray treatments given for tumors or cancers. Chemotherapy- cancer medicine given by mouth or intravenously.

Transfusion- blood or blood products given into the vein

Medical Treatment/diagnostic procedures and tests- further tests and procedures to monitor my failing condition

Surgery- an operation only if it provides for my comfort and dignity

Paramedic- for transport to an acute hospital with CPR in progress

Uniform Gift Act/Organ Transplant- donating body part, specify parts, if usable.

Autopsy, complete or selective, to confirm my diagnosis

OTHER CONCERNS OR CORRECTIONS

I wish:

1. Caring and supportive nursing and medical care to relieve pain and suffering including narcotics to relieve pain even if respiration is depressed.

2. Food and fluids to be offered as long as I am conscious to take them by mouth and then moist sponges to moisten my lips to relieve the sensation of dehydration.

This form is to be included in my Durable Power of Attorney for Health Care.

__________________________________

Signature

_________________

Date

From Veterans Hospital, S.F. 1991

Since many states require a notary or witnesses, I suggest you follow the same rules for this in order for it to be properly included.

Have Fun (?) with this. Revise anyway you like. Add your own diseases. Suggest your own problems. Me? I'd like lots and lots of drugs. I never participated in the 60's and I think I'll make up for lost time on the way out.

REALLY GETS ME MAD: While writing this letter, I got a call from a insurance company wanting me to sell their policies. Now they actually do have some good products, but I almost blew my stack when they repeatedly talked about the great commissions and the free gifts I would get if I used their product. Consumers have a true reason to wonder if their agent is really doing the best for them or if it is due to simply picking up the money the companies throw in front of them.

WHAT A BUMMER: According to the National Institute of Mental Health, more than 80 million Americans- about 28% of the U.S. total population, suffers from a mental or attention disorder such as major depression, obsessive compulsive disorder, panic disorder, anxiety disorder, drug dependence, alcohol dependence or suicidal thinking. Of this group, about 20% will visit a doctor. BUT ONLY ABOUT 4 TO 8 IN 100 WILL BE PROPERLY DIAGNOSED. The costs for these disorders has been estimated at $273.3 billion in 1990. A doctors at the University of Alabama says that's $98.4 billion due to lost and reduced productivity; $65.6 billion for treatment and $43.7 billion for lost earnings due to premature death and $65.6 billion for costs associated with factors such as crime and fires. Many elderly feel that the simple fact of aging causes depression. In a recent study, more than half the seniors over 75 felt that way. Of the 600 adults over age 21, nearly 93% believed that depression is a normal side effect for people suffering from a serious medical condition. About half thought that the lack of energy, recurrent thoughts of death, and difficulty with concentration are natural parts of aging rather than possible signs of depression. Faced with these misconceptions, AARP is attempting to increase public awareness about depression in the elderly. Depression affects about 15% of adults aver age 65 in the U.S. Although 6 million may have clinical depression, only 1 million will be properly diagnosed. However, if they are diagnosed properly, depression may be overcome in about 80%. "Sustained depression that impairs function is not a normal response to disease or any life event" says a doctor at the University of Washington.

SUICIDE: 20% of all suicides occur on the elderly over 65 years of age. And the rate of "success" is 50% higher than any other group since they use guns. The numbers are expected to increase as more people get older. The main reason for suicides is depression.

401(k): (WSJ) Only 75% of all qualified workers have invested in their 401(k) plans. Nonetheless, the money in 401(k) plans now is about $700 billion- an increased of 50% from a year ago.

ADVICE: Is it worth paying for advice? Obviously, I think so- though my work involves far more than just the investments. Anyway, a recent study by DALBAR Financial Services of the returns by fund investors between 1/1/84 and 9/30/94 indicated that investors who used no load funds had a total return of 55% while those that worked with an advisor had returns of 70%. Nonetheless, it tended to point out that the no load investors were either undoubtedly unsophisticated or so conservative that they used the low returns of money market funds. Either that or they attempted to time the market, ultimately finding out that that doesn't work.

MEMORY MYTHS: (Dr. Barry Gordon)

COLLEGE COSTS: (Kiplinger's) After the horrendous bill for tuition, there still are many other costs. A dorm room (double) will go from $490 per semester to as high as $2,575. A full meal pan ranged from $548 to $1,701

ELDERLY AT RISK: Only fifteen states require background checks on caregivers- AK, CA, FL, ID, IN, LA, NV, OH, OK, OR, RI, TX, UT. VA, WA. Three states- ID, NV, and OH, use FBI data checks.

 WHAT IS THE DIFFERENCE BETWEEN GENIUS AND IGNORANCE?

GENIUS HAS LIMITS

NETCOM: One reason for part of the market's uneasiness is the run up in some tech stocks in 1995 far beyond their fundamentals. One analyst recommended NetCom at $69 and it subsequently fell to $22 in March. The WSJ noted about stock ratings- "touting a stock at a silly price is fool's work regardless of whether other stock are just as silly or sillier. When one tulip bulb crashes, they all will. If you can't give a stock the highest possible rating, don't recommend it. Money lost on a lukewarm pick is money lost. A stock that is attractive save for its valuation isn't attractive at all."

RETURNS: (Lipper)
Investment

Objective

 3rd Quarter

1996

 Year to Oct 1 One year 5 Years 10 Years
Capital

Appreciation

 2.08 13.44 15.85 14.29 12.62
Growth 2.94 13.25 16.30 13.84 13.34
Small Com. 1.65 16.76 18.58 16.63 14.25
Mid Cap 3.10 14.82 16.32 15.59 14.68
Growth &

Income

 2.89 12.41 17.55 13.88 12.90
Equity Inc 2.84 10.66 17.06 13.29 11.60
Global 0.50 11.722 12.92 11.24 11.35
International -0.97 8.77 9.43 9.55 9.52
Stock/Bond Blend 2.47 7.77 12.09 11.13 10.33
Short Term

Debt

 1.62 2.59 5.16 5.73 6.64
Intermediate Corp Debt 1.80 0.38 4.48 7.07 7.63
Intermediate Gov't 1.61 0.23 3.97 6.15 7.19
Long Term

Corp

 1.49 -1.69 3.06 6.75 7.38
High Yield 4.62 9.74 12.63 12.54 9.37
Mortgage

Bonds

 1.79 1.83 4.55 5.67 7.54
World Inc 4.33 7.41 12.38 6.33 8.65
Short Term Muni 1.28 2.25 3.89 5.17 5.30
Intermediate Muni 1.76 1.54 4.36 6.15 6.64
Long Term Muni 2.29 0.94 5.69 6.94 7.35
High Yield Muni 2.32 1.73 6.01 7.09 7.45
Insured Muni 2.44 0.77 5.97 6.68 7.13

 

WOMEN VS MEN: The National Association of Investors Corporation stated that their women only investing groups had earned a 21.3% average annual return versus only 15% for the men.

MUTUAL FUND BENCHMARKS:
Investment

Objective

 3rd Quarter

1996

 Year to Oct 1 One year 5 Years 10 Years

DJIA w/div 4.64 16.95 25.72 17.47 16.45
S&P 500 w/div 3.09 13.49 20.32 15.21 14.97
Small Co Index 0.63 12.14 14.63 16.29 NA
Lipper Index Europe 1.76 14.46 14.25 10.56 NA
Lipper Index Pacific -2.65 3.45 5.05 8.58 NA
Lipper LT Gov't 1.58 -0.56 3.39 5.94 6.93
Avg Stock Fund 2.61 13.73 16.90 14.49 13.48
Avg. Bond Fund 2.41 1.83 6.62 7.49 8.02

 FIT BRAIN: (Parade) More research on the brain indicate that competency can be maintained for the vast majority for your entire life. Brain scientists have come up with certain suggestions

IRA's: As stated many times previously, do not make decisions about the distributions from an IRA or other type pension plan without consulting an expert. Problem is I'm not sure where you could go since literally all attorneys, financial planners, CPA's, etc. are not conversant in the specifics of this very difficult area. Anyway, it is possible to take money out of an IRA before 59 and not pay a penalty if you take it out over your actuarial lifetime and for at least five years. After such time, you can change the distribution. What I recently became aware of is that fact that the distribution need not consider your entire IRA monies- just the money in aparticular IRA. It means that if you had $100,000 in total IRA assets, you could simply take and put $33,000 into one IRA and take the distributions on just that one account and leave the other $67,000 alone. It gets more convoluted all the time

UNEMPLOYMENT RATES: Here are some of the unemployment rates for the past three years for different countries, seasonally adjusted.
93.4 94.4 96.1
United States 6.6% 5.5% 5.6%
Canada 11.1 9.7 9.4
France 12.3 12.0 12.2
Germany 8.4 8.1 9.0
Italy 10.6 11.4 N/A
Japan 10.2 9.0 8.4
Britain 10.2 9.0 8.4

Britain was supposed to do better and has. Germany has been restricted by the unification and is trying massive changes in its society in order to reduce the deficit and spur growth. Italy is trying to reduce the deficit and is having troubles. France is, well, France.

Here are the stock market indices for the same period. 1990 = 100
93.4 94.4 96.1
United States 140 137 186
Canada 124 123 145
France 119 106 110
Germany 104 101 111
Italy 88 96 92
Japan 70 71 73
Britain 140 137 162

CANADA: I had thought for years that Canada should have been the place to invest. But every time I got close to doing anything, they screwed up once again. They have a per capita debt that is larger than ours. An article in Worth noted a probable reason for the ineptness. "Canada's heritage could have given it the best of all worlds- English government and politics, French culture and American technology. Instead, it adopted English technology, French government and American culture."

Tacky, but I like it.

COLLEGE INFLATION: Tuition at four year public colleges has increased more than three times the rate of inflation during the last 14 years

HP12C: There is a major section on my WEB page WWW.EFMOODY.COM where I make specific reference to the Hewlett Packard financial calculator. Never use anyone who cannot use one. Interestingly, an American Management Association survey noted that 32% of applicant's for jobs in the financial sector were deficient in math and literacy skills.

CAREGIVERS: (Gail Sheehy) As Americans who are reasonably healthy and have some assets, we may rarely see the number of people who fall through the cracks. (Do you know that 10% of American adults are severely disabled. Do you ever see them?) Many are the older women who have accepted the role of caregivers for others and, unfortunately, leave themselves open to financial and emotional turmoil, Sheehy notes that there are a number of women of the "margins of our society who had to quit their jobs and give up health insurance and pension coverage to nurse parents or husbands or in laws through the long twilight of chronic illness" or through their illness of breast cancer. "22% of family caregivers quit paying jobs and give up annual earnings of $29,400 per year in order to spend upwards of 18 hours per day serving as home nurses for no pay." And if they are able to rejoin the ranks, older women run into the prejudice of age and may have to settle for low income, no benefit jobs.

There are two issues which I dwell on repeatedly. The first is that many people could afford long term care that would help immeasurably. The second is that women need to focus a lot more on themselves. Of course, that is a lot easier said than done.

LIFE INSURANCE WHILE YOU ARE DYING: Seems like an impossibility doesn't it? Well, there are situations where you are guaranteed acceptance for life insurance, even paying for more than you get from the policy, and even while you may be "terminally" ill. Guaranteed issue requires no medical or blood profile and all of the underwriting responses are to non medical questions. The combination of higher premiums and waiting periods for full benefits control possible adverse selection. So why would anyone want this? First of all, have people lived beyond the time frames identified by doctors? Perhaps not normally, but some actually do live quite a bit longer (look at what has happened to AIDS patients in the last year). If the individual does live longer, they have provided additional protection for their family. Partners in businesses may want another partner to be covered regardless of the cost. Anyway, to them it is tax deductible. And some elderly simply refuse physical exams and this is one way of getting coverage even if it is at a higher cost. Better something for the surviving spouse- normally the woman- than nothing at all.

LIFE INSURANCE SALESMEN: The American Council of Life Insurance statistics indicates that the people that maintained an agent relationship declined from 44% in 19678 to 28% on 1994. Further, there was a 50% decline in consumer's belief that a life insurance agent's advice was "very helpful". The Insurance Advisory Board however showed that when an agent adds financial planning services, there was a 50% increase in the level of "very satisfied" customers. You just have to be sure that true financial planning was added. Minimum designation are CFP and ChFC. Make sure to get the brochure as a Registered Investment Adviser or similar. If none available, be afraid. Be very, very afraid.

SCHWAB: The firm is using an inexpensive method to get people to invest. It charges a fee- like I do- and then determines where people should invest. Charles Schwab says it will simply ask a few questions in order to get people to invest at all. Supposedly the fee will be about $500. Undoubtedly Schwab will get many people to invest, but I wonder just how well these people will understand what they are getting. Further, why would you pay $500 to someone who doesn't know much. Is there professional training being offered to these "planner reps"? By whom? A series 24 rep? Worthless. A simple questionnaire might lead to unsatisfied clients and unsuitable investments. Ask yourself this- would you be satisfied with a medical exam that you paid $500 for, that, had you done any review whatsoever, you would recognize it only checked your pulse? I do not like the simplistic (or nonexistent) methods used by many brokers or planners since it tends to lead to sophomoric and ineffective planning. But maybe Schwab is right- better they save and invest then do nothing at all.

DEAN WITTER: (WSJ) The B/D firm said they would conform to SEC recommendations to eliminate extra compensation to brokers to push inhouse funds. Well, they did that, but they did not change the extra compensation to the managers who continue to push the brokers to sell DW funds. Unfortunately, the major Dean Witter funds have produced below average returns over the last 5 years and at higher average costs. So why do people use them? They are either people that are not too bright or they are people that are lazy and don't do any homework to determine who they should be using.

HEALTH CARE COSTS: According to an October Kiplinger's, these costs had slowed to an annual 6.4%- the slowest rate of increase in 30 years. That's good if it stays that way, but note it is still about twice that of inflation.

KEEP ON TRUCKING: (NY Times) Want to stay physically active till your 90+? Then keep your weight down and exercise. Every extra pound of body weight adds four pounds of pressure to the kneecap. When climbing stairs, that single pound adds 20 pounds of stress; when running or doing aerobics, it adds about 25 pounds of stress. So why this comment? It's much cheaper budgeting for running shoes than a wheel chair and a nurse. Your decision, but you need to act now while you are younger.

DYING: (Archives of Internal Medicine) The General comment when people die is that they would like to be surrounded by their loved ones and avoid the futile treatment of life sustaining measures. But researchers found that those deciding against life prolonging care did so partly because of the financial hardships that their beneficiaries would endure. Those not having much money were 30% more inclined not to bother with the measures. However, the more interesting issues is how money was addressed by the remaining family. Many articles have focused on the fact that perhaps greed was a considerable factor in not using extended care. But the study showed that the medical decisions made were effectively not influenced by finances.

LONG TERM CARE: If you buy a policy that has home care coverage (in addition to nursing home care), be sure you have help within the community, otherwise it may not be effectively utilized. Most policies will pay about $50 to $100 a day, but using the required licensed homemaker at $15 to $25 an hour won't take you too far. And literally all policies require a licensed agency. However, UNUM- which charges higher premiums- apparently allows payment to anyone- including a son or daughter (seems ripe for abuse).

POLICE: (NY Times) Life expectancy for a male officer is 59 years of age versus about 75 for all males. Twice as many police officers commit suicide as are killed in the line of duty.

CHRONIC FATIGUE AND IMMUNE DYSFUNCTION SYNDROME ASSOCIATION OF AMERICA: 800 442-3437 is a patient advocacy group that can refer to support groups and has free information

NURSING HOME CARE: Per John Hancock, these are the reason why people are in nursing homes

AILMENT %of Insurance Claims

Dementia/Alzheimers 36%

Bone/Joint Disease 17

Cancer 14

Stroke 13

Heart/Blood Conditions 10

Organ Disorders

(Stomach, liver) 4

Lung Disorders 3

Wounds/Injuries 2

Diabetes 1

401(k): Here's a real episode of ignorance and company liability. A 68 year old woman who apparently knew nothing about investing, worked for the now defunct Carter Hawley/Emporium stores San Francisco. When the company started to have problems, it swayed her into shifting part of her 401(k) funds that were in a low risk position over to the stock of the company. When it tanked, her $84,000 of a 401(k) investment was only $8,000. She's 68 years old. Frankly, I'd like to see the corporate officers held personally responsible, but that won't happen. Workers at Color Tile invested the same way and lost when the company filed bankruptcy.

About 23% of EE's have money in company stock- a real stupid thing to do in terms of risk. An article in Kiplinger's 12/96 magazine stated that a review of 11 million participants at 1,000 companies showed that 42% plan assets were invested in company stock. But EE's are not being effectively warned about the risk at all- as identified by some of the educational offerings. When a company uses twits to make sophomoric presentations, you get people making clearly bad mistakes. And even the big names are at risk for liability- at least as far as I am concerned. Wal Mart EE's have 88% of their funds in the company stock. Cooper Tires is at 77%. Many of the company's are hiding by the grey areas of the law and outright greed and stupidity on the part of management. Haven't people heard of ethics? I am not saying that a complete seminar by a knowledgeable instructor would avoid all the problems, but it would keep this stuff to a minimum.

401(k) plans are now about $670 billion and have grown about 20.5% over the past 10 years..

NATIONAL CHRONIC FATIGUE SYNDROME AND FIBROMYALGIA ASSOCIATION: 818 313-2000 is a non profit organization that has general information and uses volunteers to answer questions.

CHRONIC FATIGUE: This is a tough disease to document since there is no definitive test that can prove the disorder. Therefore it may be difficult to get reimbursement for expenses in testing. Business Week suggested your doctor simply indicate the symptoms of sleep disorders and muscle aches and not mention CFS.

It is also nigh on to impossible to apply for disability insurance with this malady and many companies will restrict coverage to only two years.

DISABLED: (Gail Sheehy) As stated, women are the caregivers of our society and will many times subvert their own identity in the caring for someone else. When the patient subsequently dies, she may be left with a void that may be hard to fill. As an older woman, without skills, afraid of what to do and what is next, they can lie listless until they also fade away. But the studies also have showed the resiliency of the human spirit in continuing onward. The whole issue was simply in forging ahead and trying. Many of these women took classes- even at age 60 or more- getting a job- anything to start- and then working their way upwards from there. And absent depression- which can mess up anything- just TRY. There are very few lives that are just "peachy" so you have to make what you can out of it. Mine has not been all that rosy, but I sure have made it "interesting". So can you.

SELLING A HOUSE: I covered this before, but a house should always be neat and clean and colorful in order to catch a buyer's attention. As one agent stated, "A house is life a book that is judged by its cover". A SF Chronicle article said that buyers will eliminate 50% of properties to view simply by a drive by of the exterior. Very few venture into a home that looks unattractive from the outside. So,

1. Make any necessary repairs

2. Paint the exterior, if needed, in subtle tones

3. Use lots and lots of colorful flowers. Rent a high school kid and buy a lot of pansies at K-Mart. Amazing what this can do.

4. Steam clean the driveway. Fill in any cracks

5. Keep your kids bicycles out of sight in the garage. (Maybe hide your kids!)

6. Keep windows and doors spotless. Prospective buyer's may want to peer in and a dirty window can kill the sale.

7. If the interior is in bad repair, I might suggest repainting all the walls. But I would not do recarpeting and certainly no major renovations to the bathroom or kitchen. Use a credit for those items.

DOCTORS & DISABILITY CLAIMS: Disability companies have seen claims skyrocket as some of their "best" clients have claimed all sorts of maladies. Some of the worst "offenders" are doctors. SF Chronicle articles stated that for the first time in US History, doctors working at large group practices outnumber solo practitioners. This has led to a significant number of stress claims, chronic fatigue, back problems etc. However, the AMA said that the doctors in managed care are going to be subject to increasing bureaucratic oversight, less independence in making medical decisions and intense pressure to watch the bottom line so it may not be to much better in their new positions.

DEPRESSION AND YOUR HEART: Yes, you do see continual comments about depression since it is responsible for bad lives and premature deaths. According to surveys, depression of some form affects of the 1 million heart attack survivors and about 30% to 40% of the 350,000 bypass patients each year in the U.S.

DO YOU HAVE A LOT OF MONEY IN IRA's?:A relatively obscure law says that if you retire with "too much" money and need to pull out a lot at 70 1/2, then any amount over $155,000 gets an additional 15% excise tax. It usually means bad planning. However, since the government needs money, it has eliminated the tax through 1999. Why does it produce more tax for the government? Because when the heavy hitters find out they have a "window of opportunity", they'll pull out lots and lots of money that is taxed now as ordinary income.

401(K) VOLATILITY: One of the first commentaries about the new investors in mutual funds was that they would head for the hills at the first sign of trouble, selling everything on the way. Then the commentary went mostly the other way since they supposedly didn't move that much money in July when the market danced low. But a survey by Hewitt Associates showed that 401(K) participants did sell and buy at a furious pace. This could substantially raise costs for shareholder services. Some indicated there was a lot of trading because it is free. Regardless, it may point out some big problems in the future when we actually have a bear market. Selling like that could drive prices south in a hurry.

SMALL BUSINESS PENSIONS: About 20% of small businesses (less than 100 EEs) have some type of defined contributions plan (where the amount put in is known but not the final outcome). About 6% have defined benefit plans (where the final result is known and where the company simply must put enough away to be sure there are sufficient sums at retirement). About 10% of companies with 50 or less EEs have 401(k)'s while about 24% of companies with 50 to 100 EEs have 401(k)'s. These will increase substantially over the years since more focus is on this type of retirement fund. Total dollar value of the approximate 1,825,000 companies with 100 or less employees in 401(k) plans is now about $95 billion- roughly 1/7 of all 401(k) plan value. About 543% of all worker s in the U.S. are employed by small businesses.

HIGH YIELD BONDS: (FED Board of NY) The use of "junk bonds" has grown almost exponentially from $30 billion in 1980 to $250 billion in early 1996. The default rate seemed to be relatively mild as I reviewed other reports, but the FED noted that in the mild recession of 1990-91, it soared to 11%. That sure puts a different focus on what I may have to do in the next downturn since they seem to be far more volatile recently than what I had anticipated.

HAVE I GOT A DEAL FOR YOU: In the vast amount of "stuff" I get is a brochure for the Federal Funding Foundation Corporation which offers "CD and Risk Alternative Investments that pay double digit returns with safety of principal." A $10,000 investment yields 16% annually- a $750,000 minimum deposit earns 26% annually. Well, obviously it makes little sense to invest in the market when you can get 26% return without risk.

So I am going to take all my client's money and invest it there and everything will turn out just rosy, won't it? I am going to take my Prozac now.

MILITARY INTELLIGENT: Yes, I know the old saying about oxymoron, but in this case it seems apt. The cold war is pretty much over, the Berlin wall is down, etc. but the Navy recently finished a $5.1 million chapel just in time to hold the last graduation for the San Diego's Naval Training Center. The Army's Fort Sheridan near Chicago closed about three years ago, but construction on a $3.3 million addition for classrooms used by the Navy is to begin soon. And in Orlando, the Navy just spent $13 million to build a dining hall on a base to close in two years. How did we ever win a war?

ERROLD F. MOODY JR.

BSCE, LLB, MBA, MSFP, PhD

2295 W. Ave 133

San Leandro, CA 94577

Phone & Fax 510 352-4127