MOODY'S REVIEW
DECEMBER 1998
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
THE QUARTER DOESN'T MAKE ANY DIFFERENCE: "Bloomberg News reports that only 19% of actively-managed stock funds beat the S&P 500 Index in the first quarter of the year. That makes 4-1/2 years during which most active fund managers haven't kept pace with the S&P index." Another quote indicated that only 90 out of 1022 U.S. diversified mutual stock funds beat the S&P 500 over the last 5 years.
What's missing from that report is that they are not even talking about the SAME managers. So a manager might beat the S&P once, but never do it again or so infrequently that it would be statistically impossible to depend on.
Further, such managers must do it time and time again if they want to keep their jobs in this highly "What have you done for me today?" reporting. For example, the John Hancock Special Equities averaged 18.5% over the last ten years but had moved wildly in doing so. It returned a negative return in the beginning of the year and the manager was fired. And remember what happened with the Von Waggoner funds? He starts his own firm after considerable success elsewhere and then burns his funds terribly. Such volatility is not for the feint of heart- but I bet a lot of conservative people bought these thinking they could always best the market averages. As one analyst put it with high volatility funds- "you either have to buy them and forget about it, or actively trade it. Most people can't trade funds and make money at it." Read that again- Most people can't trade funds and make money at it.
* We should all be concerned about the future because we will have to spend the rest of our lives there.
Charles F. Kettering
PMI and HEL: If you put less than 20% down, you have to pay Private Mortgage Insurance- PMI. That protects a lender in case of default- but simply costs the buyer more money. An article by Pamela Reeves stated that if someone bought a $150,000 house with 10% down, their monthly payment on a 7% loan would be $898.16 and an additional $58.50 for PMI. But some new mortgagors are allowing Home Equity Loans IMMEDIATELY upon purchase to allow you to put more down and avoid the PMI. So, assume you put $30,000 down using a $15,000 from a home equity loan obtained at the same time as the first. The payments on the lower first mortgage would be $798.36. Payments on the HEL- 10.55% over 15 years- would be $166.28. That would be $8 more than the first example, but the payments on the second scenario are ALL tax deductible while the PMI insurance is NOT. So it invariably costs you less. Further, PMI is very difficult to get rid of when your equity does increase- in fact it can be a terrible headache trying the attempt (the government is fixing). But you can almost always pay off an HEL anytime you want.
Another interesting example is for larger properties needing Jumbo loans- which have higher interest. By using an HEL, one could keep the size of the loan below the Jumbo size (currently $227,150).
401(k): As of 1994, there were 175,000 401(k) plans versus only 74,000 "standard" defined benefit pension plans
WORKING AFTER RETIREMENT: From a Roper Starch Worldwide survey of U.S. boomers: Only 5% say they would continue working full time after age 65 but about 80% say they will work part time. Of those with current incomes over $70,000, 52% said they intended to work for fun and 13% because they need the money. Of those with incomes under $30,000, 35% said they will need to work for the money and 44% doubt they can ever retire.
ALZHEIMERS: Late onset Alzheimers affects more than 90% of Americans with Alzheimers- about 4 million. Beyond the age of 65, the prevalence of the disease doubles every five years. 30% to 50% of people older than 85 are believed to have some form of alzheimer's. Nearly half the people that live to age 100 have Alzheimer's.
ETHICS: Comedian Jay Leno had some interesting comments about Clinton/morals, et al. "This guy (Clinton) never got out of high school. He's like a ninth grader, quoting the Bible to say it's all right. Politics is the only business where, if you play around, your wife has to defend you. If he weren't a politician, his clothes would be all over Pennsylvania and his car would be on fire in the driveway. You know the movie City of Angels where a guy gives up heaven for sex? That's Clinton."
As an instructor in ethics, I do focus on the things that are wrong in the financial industry- which is, unfortunately- endemic within our society. I have found with most people,"it is a lot easier to talk about your ethics than to live up to them." But there is fundamental difference with financial planners, etc. Clinton may seem directly removed from our everyday lives. But a planner, broker or insurance agent is sitting directly in front of you and either lying about their capabilities or is clearly ignorant of what they need to know. You need to know the difference and spend more time selecting someone to work on your money and life.
We have two kinds of morality side by side; one which we preach but do not practice, and another which we practice but seldom preach."
Bertrand Russell
LOW INFLATION: (FED Reserve Board) "Since 1982, the economy has had positive growth in all but three quarters out of 59. By comparison, between 1969 and 1982, there were 20 recessionary quarters out of 56. The current 3% inflation trend is the best record since the 1960's." When you go to bed at night, you can pray to your God. And then say a little thanks to Volcker and Greenspan.
LIFE INSURANCE & ANNUITIES: I don't like this number since it does not, in my mind, reflect what consumers should do (so what else is new?). From about 14% of total premiums in 1973, annuity premium volume now accounts for about 50% of all monies received. Life insurance premiums have therefore done the opposite going from 55% of premiums in 1973 to less than 30% today (remainder is health insurance). Whole life accounted for 82% of all premiums collected in 1980 but is now less than 50% today.
Why are annuities a problem? First, they are not investments. That said, they are acceptable for people who would have just put their money into a CD or other type savings account since the account can grow tax deferred. However, the gains are taxable as ordinary income upon receipt during retirement. This may not be a problem if your tax rate is low enough (at least it doesn't go up). The real problem is if you take a structured payout. The return might be dismal. But an even greater detriment is the fact that you lose all liquidity to the principal. If you put in $100,000 you might get $700 a month for your lifetime. But if something went wrong in two years and you absolutely needed some emergency cash- sorry- you continue to get just the $700 a month. What to do instead? Ever thought about staggered bonds? Usually a higher return but, most importantly, you have full access to your funds during a time periods when you need more access to principal. So why do so many people have annuities. Because they are sold by commissionable agents who do not understand the fundamental of retirement.
FHA: The Federal Housing Administration's loan limit has been raised to $197,620 in high-cost housing areas and to $109,032 in lower-cost markets.
POPULATION GROWTH: From 1996 through 1997, household growth in the U.S. has averaged about 1.3 million families per year. That is well above the U.S. Census projection of 1.1 million a year.
PROPERTY INSURANCE: I used to tell people that they need to get guaranteed coverage in case of a complete loss of their home and property. It was fairly clear from the Oakland, Ca fires that many people were underinsured. It was also clear that some were trying to screw the insurance companies when they had kept incomplete or inaccurate files. Because of all this, insurance companies may offer "guaranteed" insurance but not to cover any more than about 120% of value. Also, video your entire property (including any improvements) and its contents. Lists are good, but, like they say- a picture is worth a thousand words. Or, maybe, several thousand dollars.
NURSING HOMES: 43% of those people who turned age 65 in 1990 will enter a nursing home at some time during their life. The same study reported that among all persons who live to age 65, only 1 in 3 will spend three months or more in a nursing home; about 1 in 4 will spend one year or more in a nursing home; and only about 1 in 11 will spend five years or more in a nursing home. In other words, 2 out of 3 people who turned 65 in 1990 will either never spend any time in a nursing home or will spend less than three months in one.
So, of course, a lot of people will not consider a policy due to the odds. But the odds for a house burning down are even less. Does that mean you shouldn't buy fire insurance? Or the odds of using a $1,000,000 personal liability policy is low. So, does that mean you go without? Certainly if you don't have enough money, your purchases of insurance will be limited and you are exposed to more risk. If, however, you can afford coverage, insurance covers both the financial problem as well as some immeasurable emotional ones.
Further statistics from the New England Journal of Medicine indicated that 52 percent of all women and 33 percent of all men who are now 65 will spend their last years in a nursing home. So maybe these brand new statistics puts even a greater focus on long term care policies.
But here we go again. Consumer Reports recommends that if you can set aside about $160,000 (or enough to cover four years of care), you may not need long-term care insurance. Frankly, I don't think that is much different than stating that if you got $250,000 (or whatever), you don't need to buy fire insurance for your house. Or if you got $1,000,000, don't bother with liability insurance.
Insurance is a dirty word with many people but it simply is a way of playing the odds and spreading them over a very large group. You do NOT want to commit large sums. You want to commit small sums where you may never get a return of premiums because the problems (loss, sickness, accident, etc) never befall you. And another gem from Consumer's Union. "If you buy a policy early, you may want to make sure that it contains a non-forfeiture clause. Under most policies, if you let your coverage lapse, you get nothing for all the premiums you've paid in the past." True, but it may cost you 15%+ more. And I'll state the obvious once again. You don't get anything back if your house does not burn down. I have not had an auto accident in over 30 years. I ain't getting any of my premiums back. That's O.K.- I didn't want an accident in the first place. Consumer Reports seems to have forgotten what insurance is and how it is supposed to work- long term care or otherwise
NURSING HOME COSTS: The cost of nursing home care rose an average of 9.7% a year between 1985 and 1994. Average length of long term care nationally is about 2 years.
FAMILY LIMITED PARTNERSHIP: These may die soon. Family limited partnerships allow assets to be distributed to beneficiaries at reduced amounts but have been royally abused. Congress may simply put a stop to them altogether. I would not use one now.
VARIABLE ANNUITIES: "According to LIMRA, variable products were 20% of 1996 life premium and 53% of 1996 annuity considerations. The forecast is for continued growth. By 2000, 31% of life premiums will be variable and by 2002, variable will account for 70% of annuity considerations."
Why are so many people buying variable products? Because the rep is nice and they trust them. Not because they rep was competent nor certainly is it what they should be doing. You have to understand basis to buy a variable- and insurance agents are NEVER taught that.
MILLION DOLLAR ROUND TABLE: How many cases a life agent must sell in order to be identified as "Top of the Table" or whatever? Here are some numbers that will make your day. "MDRT STATS - Total 1998 qualifying members: 18,868 with an average number of lives/cases of 132 in 1997 (3,351 sold 150 or more lives/cases). Court of the Table qualifiers: 2,193, with an average of 225 lives/cases and a median of 108. Top of the Table members: 711, with an average of 280 lives/cases and a median of 101. Industry average? According to LIMRA, agents in the business for five years of more sold an average of 41 lives/cases in 1996."
DEHYDRATION: It is one of the 10 most common reasons Medicare patients are hospitalized and die, according to the U.S. Department of Health and Human Services. The condition costs Medicare nearly a half a billion dollars annually.
The people most likely to have been hospitalized for dehydration were those between the ages of 85 and 99. In 1991, nearly 197,000 Medicare recipients were hospitalized for dehydration, and it was a complicating factor in another 584,735 hospital admissions. It frequently caused death; half of those hospitalized with dehydration as a principal diagnosis died within a year. Elderly black people are nearly twice as likely to be hospitalized for dehydration as elderly whites.
RECORDINGS FOR THE BLIND AND DISABLED: 800 803-7201 provides over 77,000 volumes of audio and computerized textbooks for those with visual, perceptual or other physical disabilities.
* Give me ambiguity or give me something else.
MEDICAID: Medicaid pays for 70% of all nursing home patient days, but reimbursement rates are typically 80% of private-pay rates and often less than the cost of providing the care. One North Carolina rest home receives $893 a month per Medicaid resident compared to $2,200 for a private payer in a private room. States are spending more money on Medicaid (which pays for over two-thirds of all nursing home days) than on education. Regardless, when you see that much disparity in price, tell which patient gets the better care- private or Medicaid. Never die in a Medicaid ward if you can afford a private long term care insurance policy.
ALZHEIMERS: Exposure to light may help sufferers of Alzheimer's disease regain sleep-cycle rhythms and may reduce the need for institutional care. Patients who received two hours of bright light therapy for a month registered improvements in sleep and in body temperature.
And in new research: Alzheimer's disease may be tied to vascular disorders, including high blood pressure and heart disease. "Two years ago nobody thought there was a relationship between Alzheimer's and vascular disease," Dr. Ingmar Skoog told the 6th International Conference on Alzheimer's in Amsterdam. Hypertension does seem to have a relationship with Alzheimer's disease in the brain."
MONEY MAGAZINE: Their August 1997 issue said SELL STOCK NOW! And their August 1998 issue tells you about all the funds you should buy- even that the market is not overvalued. (Think about what happended immediately thereafter to the market!!) They also have a nice article about the new Gillette razor- something I always wanted from a financial magazine. Anyway, my subscription is up and they will give me a "special deal" of $80 for a couple years subscription. No thanks, I think I will save it up for some Viagra for my cat. No sense in throwing my money away.
COULD BE PROBLEMS: In 1997, insurance companies increased in investments in high yield bonds representing 35% of their entire portfolios- up from 32% in 1996. Add in non performing bonds and other high risk investments and it pushed the risk level up to 38 cents on the dollar. Its not the same cautionary scenario as the early 1990's, but still requires vigilance.
HOW TO EARN MONEY IN A LOSING MARKET: The top 50 stocks of the S&P 500 were what was driving the market (through 7/8/98, the top 50 returned 29.5%). The next 450 earned just 10.4%. The smallest of the 500- numbers 401 to 500- actually lost money (remember this was before the major market drop). So why not pick just the top 50? Because many of the top 50 that were, ain't. It's always changing. So it's just best to pick the whole bunch and go for the ride.
DUMBER THAN A POST: A poll by Louis Harris Associates of 1,836 adults over 65 with income $75,000+ showed these expectations
| Not Retired | Retired | |
| Stocks | 16.1% | 14.7% |
| Mutual Fund excluding money market | 15.0 | 18.9 |
| Investment Real estate | 13.4 | 11.8 |
| Bonds | 12.5 | 12.8 |
| Money Market | 10.1 | 8.7 |
This is so unbelievable I cannot fathom how stupid some of these people must be. Ever read a book? Know what statistics are? How about reversion to the mean? I mean 10.1% or 8.7% expected return on a money market fund shows the IQ of a match sitck.
NATIONAL MEALS ON WHEELS, 800 999-6262 can tell you if there is a program available in your area.
UNBELIEVABLE: Montgomery Asset Management found that mutual fund investors have terribly unrealistic expectations for long-term market performance, expecting average annual returns of 34% for the next 10 years.
REAL ESTATE REMODELING: (American Express Retail Index) About 39% of homeowners, an 8% hike over last year, are taking on projects such as kitchen remodeling, landscaping, etc. and project budgets have increased by 10% to an average of $2,929.
NOBODY READS ANYMORE BECAUSE WE HAVE BEEN WEANED ON THE GLASS BREAST: TV
Johnny Depp
ASSISTED SUICIDE: In a recent survey, 69% to 28% indicated that they backed the right of a terminally ill patient to get help from a physician to end their life. 72% said they opposed proposed federal legislation that would deny a doctor from prescribing barbiturates. If you have read other areas of this site, you know that I am a staunch proponent of the Right to Die as long as the individual is clear headed and not depressed. I would consider it in a heartbeat (or lack thereof if you want to be tacky.) Further, if I knew I had Alzheimer's- and even though I was not terminally ill within 6 months- I would also take my life. In Dr. Richard Nuland's best selling book, How We Die, he made it very clear there are two ways you do NOT want to die": AIDS and Alzheimer's.
* Consciousness: that annoying time between naps
MEDICAID PLANNING: Repeated ad nauseam throughout, you don't want to try to qualify for Medicaid for Nursing Home Care. And many states have enacted rules to prevent ElderCare attorneys from playing games to do so. New York's court recently upheld New York's "income-first rule" that means that income must be considered first [before resources] when seeking to bring a Medicaid applicant spouse's Minimum Monthly Maintenance Needs Allowance [MMMNA] up to the minimum amount. The ruling prevents excessive and unnecessary asset transfers where protecting the community spouse can be accomplished with transfers of income. The court's use of very strong language to the effect that Medicaid is not a middle-class inheritance protection program reflects a potential trend at the state court level to honor the spirit and intent of the Medicaid program.
And New Jersey Supreme Court's recently indicated that assets held in an IRA or other qualified plan owned by a community spouse must be included in determining the couple's assets for Medicaid eligibility for the institutionalized spouse.
DO NOT TRY TO DIE IN A MEDICAID WARD.
CFP's: The CFP Designation is the minimal requirement to do financial planning. That said, and per my experience and background, I think that it is viable for only the most basic needs. In fact, when I got mine in 1984, I remember thinking that I still didn't know that much- certainly not for detailed planning. Anyway, some of the brokerage firms want to establish their own criteria. Per a Ticker article, Merrill Lynch is developing a Certified Financial Manager program that "represents about 22% of the classwork" required by the basic CFP courses. Boy oh Boy, that sure impresses me.
INTERNET FRAUD: The SEC is (supposedly) cracking down on internet fraud by going after more affinity scams, phony stock offerings, pyramid schemes, etc. (Actually, I am not that impressed by these governmental securities organizations out to protect/help the consumer. If it was that important, they would at least require brokers to be taught the basic elements of risk and reward. They have NEVER been so required). Anyway, they recently broke up a ponzi scheme by Royal Meridian International Bank (sounds impressive, doesn't it??) in Massachusetts that reportedly took widows and the elderly for $7.2 million when they gave money to purchase fraudulent securities.
And, once again comes my harsh comment. The press universally assumes that widows, the elderly, etc. are "knowledgeably impaired". But these are people who can use the Internet and can (supposedly) think and read. (Not everyone over age 65 already has Alzheimers.) So why did most of them give money without ever doing any reasonable research? Because they were greedy and stupid and lazy. You NEVER give money to anyone- NEVER- unless you do basic research- READING. If you don't want to read, at least hire someone that does.
ABUSED: The elderly abused die at a rate 3 times greater than non abused.
HOUSEHOLD SPENDING ON INSURANCE 1995:
All insurance: 6.8%
Health: 2.7%
Auto: 2.2%
Life: 1.1%
Homeowners: 0.7%
Other: 0.1%
source: Ins. Information Institute
HOMEOWNER"S INSURANCE: Average homeowner's insurance premium, first quarter 1997
New England $449
Mid-Atlantic $481
E. No. Central $332
W. No. Central $445
So. Atlantic $389
E. So. Central $453
W. So. Central $817
Mountain $515
Pacific $636
source: Ins. Information Institute
RETIREMENT SAVINGS: Percent of groups that save for retirement (Eighth Annual Retirement Confidence Survey)
Hispanics- 37%
Blacks- 47%
Asians- 62%
Whites- 66%
The Global importance of the Middle East is that it keeps the Far East and the Near East from encroaching on each other
Dan Quayle
INTERNET ACCESS: According to MIDS, more than 100 million people around the world now have access to the World Wide Web, and 120 million people have access to Internet e-mail. That's close to double the number of consumer Internet users having access in 1997. Consumer Internet users are projected to top 700 million people by 2001.
ORGAN TRANSPLANTS: If you need a transplant, you may need to move. AP found that "the nation's best organ banks move four times as many organs from the dead to the living as the worst, a fact that suggests that hundreds or thousands of lives are needlessly lost each year among those waiting for transplants. Their computer analysis of the nation's 63 organ banks found a wide disparity in their effectiveness, which also helps explain why patients in certain parts of the United States stand a much better chance at getting the transplants they need."
STOCK PROMOTION: This is really not a surprise to many of us in the business- "Jason Anders of the Wall Street Journal's Interactive Edition has been attempting to shed some light on a subject that many online users still haven't grasped -- that many, if not most, websites devoted to "picks" are paid to "promote" the stocks they profile." Ewire noted that payment amounts exceeding $100,000 for a "favorable write-up" is not uncommon for a distribution that can not possibly cost more than 1/10th of that. In fact, the fees are often so exorbitant that any "investor" should stop and think about what the very existence of such an "arrangement" says about the management of the company itself."
It just focuses once again on an individual's capabilities in understanding the ramifications of buying singular stock anyway. Before one even views these web sites, you have to know the answer to this: How many stocks to you need to have in a portfolio in order to insulate it from unsystematic risk???
MEDICARE: (NY Times) Mentioned several times previously, the the Balanced Budget Act of 1997 (BBA) flattened the rate of Medicare payments paid to HMO's and reduced the annual increase in Medicare . The rest was preordained. Aetna, Pacificare Health Systems, Oxford Health Plans, Foundation Health Systems, Kaiser Permanente, and Blue Cross and Blue Shield associations have all cancelled Medicare plans in parts of 13 states over the last year. The increase was as low as 2%.
INFOMERCIAL INVESTMENTS: Infomercial pitchman William J. McCorkle, 32 and a former exotic dancer, and his wife were found guilty verdicts in an 85-count federal indictment charging he and his wife with deceiving his "customers" in real estate scams out of millions of dollars. I saw the infomercials- looked great. Of course, you had to be stupid to believe them.
ALZHEIMERS: Alzheimer's disease costs U.S. businesses more than $33 billion a year in lost productivity and absenteeism
GUIDE DOGS OF AMERICA:
1-800-4K9-GUIDE
GUIDE DOGS FOR THE BLIND: 1-800-295-4050
MEDIGAP: Charles N. Kahn III of the Health Insurance Association of America said that the satisfaction rate among Medigap customers was nearly 90%. "Nearly nine out of 10 Medicare beneficiaries - some 30 million Americans - have some sort of MedSup or Medigap coverage," "Today, Medigap often is the only protection against out-of-pocket expenses for seniors in rural areas."
There are going to be a lot more Medigap policies being sold now and in the immediate future as more and more HMO's drop out of the Medicare market since the fees for patient care is being sharply reduced. I think the costs will go up more than the 15% rate of recent years. The elderly are really caught in a bind.
OLD: The number of Japanese
citizens aged 100 and older is expected to top 10,000 in September. Japan
is expected to have 10,158 people aged 100 or older by the end of September-
an increase of 1,667 centenarians from a year earlier.
IF YOU LOOK OVER THE LAST YEAR OF YOUR LIFE
AND YOU ARE NOT BROUGHT TO TEARS BY EITHER SADNESS OR HAPPINESS,
YOU MAY NOT BE LIVING
VOLUNTEERS:
Kids Campaign, 888 544-5437
Boys and Girls Clubs of America has after school programs for latchkey kids. 800 854-2582
Campaign to End Childhood Hunger, Food Research and Action Center, #540, 1875 Connecticut Ave, NW, Washington, DC 20009, 202 986-2200
The America's Promise Alliance for Youth needs mentors for at risk youngsters. 888 559-6884
General Federation of Women's Clubs works to
prevent child abuse, serve as a tutor/mentor for literacy and learning disability
programs or advocate for state and local legislation to protect children.
Dept PM, 1734 N St.T, NW, Washington, DC 20036
WWW.EFMOODY.COM: My site is listed as FOUR STARS by the University of Maryland . Also listed by Ferris State University, among other colleges SMOKING: Western Pacific: In 1994 an estimated 50% of men and 5-7% of women in the region smoked. Figures for 1997 showed that 60% of men smoked and 8% of women.
ON-LINE BROKERS: The WSJ had 10 questions to ask in selecting the best on line broker.
1. What kind of investor are you
2. How much money to you have
3. What 's the firms' background and history
4. How reliable is its customer service
5. What are the commissions
6. What are the other fees
7. What types of investments are available
8. Is the broker's site easy to use
9. What type of research is available
10. What special services are offered.
Here is my number 11. How many stocks should you have in a portfolio in order to insulate it due to unsystematic risk? Know the answer? Fine, spending time with the 10 questions may be useful. Don't know the answer? Oops, spending time trying to figure out where to buy something you know literally nothing about is a waste of time. You know effectively nothing about the fundamentals of diversification and investing. Grow up and read a book.
BOND VALUE??: (WSJ) An arrticle noted that you really can't tell if you get a good buy on bonds (and on market maker stock) because you don't know and can't tell what the spread is (it does not have to be listed separately). However the courts have recently reinstated a case in order to "protect consumers from paying excessive markups that, because they remain undisclosed, are fraudulent."
Know how to get a good estimate of value? Go on to the Internet at my site and check out some of the bond links. You can get buy and sell quotes.
ALZHEIMERS: The New Scientist
magazine noted that children of older men may have an increased chance of
developing Alzheimer's disease. It is suspected that DNA damage that builds
up with age can be passed on from older fathers to their children which could
raise their chances of developing the progressive degenerative brain disorder.
Wonder what Clint Eastwood was thinking. Then again, I don't think he was
thinking.
DEPRESSION: This is insidious. It is not just having a bad day. It is the (at times) unending gloom that can permeate your being. It affects about 15 million Americans at some point in their lives. They spend about $3 billion annually on drugs to combat it- though about 20% do not get any benefits from such medications. But there is a new drug called MK-869 which appears to bring remarkable improvements. Works as good as Paxil without the side effects.
LONG TERM CAPITAL: Many of you may know of the "infallible" computer programs that take apart the "illiquid" and "illogical" stock market, break it into its finite components, and then trade in a way that no human can imagine. But, oops, they have stumbled in our recent down market. Shouldn't be too much of a surprise because it happened in the past and will probably keep happening way into the future since the market and its outside influences are way beyond the software of the computers (actually beyond the capability of the programmers. Computers just do what they have been programmed to do). A recent BW article addressed the losses just last year of the Bank of Tokyo ($83 million); Natwest ($112 million) and UBS ($421 million). If you just go back a few years to the most "risk free: investments- money market funds- you might remember Piper Jaffrey ponying up $20+ million and Bank of America coughing up $64 million in order not to "break the buck". Let's Be Careful Out There.
SMOKING: World Health Organization director- "Smoking is probably the most important cause of death in Europe."
CENTERS FOR DISEASE CONTROL AND PREVENTION: Half of all HIV infections in the U.S. occur among young people under age 25
COMPUTER SALES: International Data Corp indicated that unit volume in the worldwide personal computer market this quarter is expected to grow year-on-year 11%. And SNBC indicated recently that "Small business demand for computers is projected to grow 31.7% in the year. The reason? The small business PC market segment hasn't been as fully penetrated as the personal and home-use PC market. PC shipments to companies with between 10 and 49 employees will grow even faster--possibly topping 34.5%. The typical small business employing fewer than 100 workers owns between one and 65 personal computers."
That might be another valid recognition of the underlying strength of the U.S. economy. It certainly bodes well for technology issues into 1999.
DEPRESSION/MENTAL IMPAIRMENT: In 1992, the EEOC recorded 91 complaints of discrimination on the basis of emotional or psychiatric impairment, or 9.1% of all disability claims. By 1997, with the number of mental disability claims skyrocketing, that had jumped to 2,789, or 15.3%, making this, for the first time ever, the largest single category of claims. Complaints outnumbered those related to HIV, cancer, substance abuse, vision, hearing and diabetes-related disabilities combined. And preliminary numbers for fiscal 1998 show yet another increase.
STRESS??: "Worker absenteeism has climbed to its highest level in seven years, costing employers millions of dollars. Employee absenteeism jumped 25% just since last year, according to a new survey of absences from June 1997 to May 1998 by CCH, a provider of human resources information. Dollars lost to absenteeism have jumped 32% since last year, or nearly $4 million for a large company. Family issues are now the most often-cited reason for time off, replacing illness as employees' #1 excuse for not coming to work."
INSURANCE: (Juan B. Aponte and Herbert S. Denenberg, "A New Concept of the Economics of Life Value and the Human Life Value: A Rationale for Term Insurance as the Cornerstone of Insurance Marketing," Journal of Risk and Insurance, September 1968) Two insurance professors discuss the failure of traditional marketing approaches to match products with needs:
"Perhaps the entire structure of life insurance marketing needs retooling, as it relies almost exclusively on a marketing force promoting an investment, yet basically untrained in matters of investment. In making an investment use of life insurance, the insurance oriented salesman is generally more conversant with the advantages than the disadvantages of his recommendations. What is needed is an insurance-investment counselor who has no special financial interest in any investment alternative and is also conversant with all major alternatives. Today, the typical insurance salesman not only does not fully appreciate investment alternatives, but he often has little understanding of the investment element of life insurance. And his limited knowledge is strongly warped by his interest in the commission structure of his product." I am one of only 35 licensed Insurance Analysts in California .
STOCK INVESTMENT CLUBS: Just like the Old Beardstown Broads who couldn' t do simple math and ended earning considerably less than the marketplace, the Investment Clubs nationally that touted their higher returns than the market overall turned out to be wrong as well. In a UC Davis study by Odean and Barber of 166 clubs, 60% underperformed the market. Apparently most don't come close to beating the market and even other individual investors. One reason per a Harvard researcher was "social dynamics"- club members sometimes vote to buy stocks "simply because they don't want to dissapoint the person who researched the idea". The UC Davis study also noted that clubs paid a 7% commission for round trip trades versus 5% for individuals.
TV and DRINKING: A Stanford University study found high school students who watch lots of TV and music videos are more likely to start drinking than other kids. Experts say the findings are not surprising because alcohol is the most common beverage shown on television. The research also showed those who rented movies were less likely to start drinking.
COLLEGE DEBT: A survey by Nellie Mae, the largest nonprofit provider of student loans in the country stated that the average total debt for students was $18,800 in 1997 compared with $8,200 in 1991.
In 1981-82, federal grants made up 54.6 % of student financial aid, and federal loans 41.4 %. By 1995-96, federal grants made up only 39.7 % of financial aid, and federal loans 58.9 %.
The survey found that the average debt for students in public four-year colleges was $13,000 compared with $17,500 for those who went to private colleges. Those in graduate schools had debts of $24,500 and $48,500 who went to professional school
IRA WITHDRAWALS FOR CERTAIN MEDICAL EXPENSES: These are now penalty-free. The usual 10% penalty tax on early withdrawals from an IRA does not apply if the funds are used to pay for medical expenses that are in excess of 7.5% of adjusted gross income. Also, the 10% tax does not apply to distributions that are used to pay for medical insurance (without regard to the 7.5% floor) if the individual has received unemployment compensation under federal or state law for at least 12 weeks.
ACCELERATED DEATH BENEFITS: Amounts received under a life insurance contract on the life of an individual who is terminally or chronically ill may be excludable from gross income (check your contract to see if the rider exists). A similar rule applies to proceeds from the sale of a death benefit under a life insurance settlement to a viatical settlement provider under those circumstances (but do a lot of research before you attempt a viatical.)
LONG TERM CARE: Nursing home costs have risen 20% in the last three years to a national average of $46,000 (in New York City, it is $81,000!). In 1994, only 22% of adult children expected to have to support living parents. Now it is 40%. According to many industry experts, "long term care policies are drastically under priced and will require substantial rate increases in the future. If so, they could suffer the same fate as many disability income policies." What they are referring to is the fact that thousands of disability policies written on the "best" categories (doctors, attorneys, etc.) came under a crescendo of claims requiring the complete rewriting of the contracts and substantial cost increases coupled with severe restrictions in benefits. I have read nothing to indicate that the underwriting on the elderly is misplaced. Admittedly, due to better health, MORE people will need long term care (yes, you read right). But they will not need it until a later age. How that is being factored in, I don't know.
ALTERNATIVE MINIMUM TAX: "Millions more taxpayers will become subject to the alternative minimum tax unless Congress changes the tax laws. The number of taxpayers subject to the AMT is projected to increase more than 10-fold to 8.8 million by 2008. The primary problem is that income exemptions under the AMT are not indexed for inflation, but remain fixed ($45,000 for couples filing jointly or $33,750for singles), nor are AMT tax rates indexed either.
DEATH: (NATIONAL CENTER FOR HEALTH STATISTICS (NCHS) and the Centers for Disease Control and Prevention (CDC). "The majority of deaths (56%) occur in a hospital, clinic or medical center; 19% in a nursing home and some 21% of people died at home."
WORLD HEALTH: The World Health Organization recently stated that poor health in the future will arise from lifestyle-related and behavioral patterns rather than bacteria and viruses.
SALT: The National Heart, Lung, and Blood Institute and the National Institute on Aging did a study on about 1,000 elderly aged 60 to 80. It shows that lowering intake of salt and losing some weight can end the need for drugs to control hypertension. After two and a half years, a third of the participants were able to go off of their high blood pressure medication. Subjects reduced their sodium intake by 25% and lost an average of ten pounds.
HEALTH MANAGEMENT ORGANIZATIONS: In 1996, more than 61 million people belong to one of 620 HMOs nationwide. In a 1995 Los Angeles Times poll that rated the quality of health care, 92 % of the 1,381 HMO members said their coverage was excellent or good compared to 86% enrolled in the standard fee-for-service plans. In particular, 88 % of Medicare HMO beneficiaries rated their plan as excellent or good. The same poll noted that eight out of ten HMO members would recommend their plans to others. The American Association of Health Plans reported in January 1997 that 81 % of all HMO physicians are board certified compared to only 62 % of non-HMO physicians nationwide. And from NetMarquee: More companies, small and large, are switching to managed care. In 1997, managed care enrolled 85% of all insured employees, up from 48% just five years ago. Because of this shift, health plan costs increased a mere 0.2% in 1977 for an average $3,924 per employee. However, employers expect health plan costs to rise 7% this year because of the federal government's effort to shift more of the cost of medicare to health providers. Additionally, the reduction of payments has caused HMO's to opt out of Medicare. You are going to see some huge problems for the government very, very soon. Social Security needs fixing in the future. This will require attention NOW!
TAXATION OF SHARES SOLD: There is first in, first out, average, individual selection and Double-Category: In this method, all of your shares are divided into two categories at the time of each sale or transfer: short-term shares (one year or less) and long-term shares (more than one year.) You average the cost of shares in each category separately. In this way, you may specify whether you are classifying long-term or short-term gains. If you elected to use the double-category method, but do not specify for a particular redemption whether you are redeeming short-term or long-term shares, the IRS will deem you to have redeemed the long-term shares first.
I CAN'T REMEMBER: University of Florida researchers have found that women are better at remembering where they put their car keys and other things. But it says men are far more confident that they remember exactly where an item was put. Experts aren't sure why women out perform men when it comes to remembering where things were left. However, they say it might be because women have more experience in finding things around the house. The men's misplaced confidence is attributed to the fact that society teaches men to form strong convictions. Balderdash! Most of us men are usually wrihgt. So ther!
TO THE WEALTHY: 1,137 taxpayers in 1994 who made over 200,000 dollars paid no income tax.
DEFINED BENEFIT PENSION PLANS: there's been a shift away from defined benefit pension plans towards defined contribution plans-primarily 401(k)'s. In 1995, according to the employment benefit research Institute, about 45 % of American set of 401(k) plan.