MOODY'S REVIEW

FEBRUARY 1998

COMMENTARY ON INVESTMENT AND PLANNING ISSUES

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

MASTER OF SCIENCE IN FINANCIAL PLANNING

REGISTERED INVESTMENT ADVISER

WWW.EFMOODY.COM

OBESITY:(Bjontorp & Bridoff) Obesity is taking over our bodies. C. Everett Koop said that if he had remained in office, his next "war" after smoking would have been against obesity. Here is a table that shows the percentage of Americans that are overweight.

1986 59%
1987 59
1988 64
1989 61
1990 64
1991 63
1992 66
1994 (no survey in 1993) 69
1995 71

And how to we compare to other countries? Approximate weight for 5'4" person
North America 163
Southern Europe 156
Eastern Europe 150
Western/Central Europe 147
Northern Europe 146
Southern/Central Europe 145
Africa 137
Asia 128

The World Health Organization states that 300,000 Americans die prematurely every year due to obesity. Smoking was higher at 400,000- but at least going down. The numbers to obesity are going up. 1/3 of Americans are obese (more than 20% overweight), and around 75% are heavier than the optimal weight. Americans gained an average of 12 pounds in just the last decade.

See how you stack up as a future health risk? Use this chart or multiply your weight in pounds by 705 (another formula used 703) and divide by the square of your height in inches.

The numbers are a guide only- not the last say in physical fitness. Further, some people can not help but be fat due to a physical condition. But they are a minuscule number. The rest is due to bad eating habits and almost a total lack of exercise. The statistics clearly point out that you will have far more health problems (heart disease, stroke, diabetes and cancer) during life and you won't live as long either. An American Cancer Society study found cancer deaths overall were 33% higher for men and 53% higher for women whose weight was 40% or more above average. Overweight men had a much higher chance of dying of colon, rectal and prostate cancer. Overweight women had much higher rates of endometrial, gallbladder, cervical, ovarian and breast cancer.

BODY MASS INDEX

Weight
height 110 115 120 125 130 135 140 145 150 155 160 170 175 180 190 195 200
5'0" 21 22 23 24 25 26 27 28 30 30 31 33 34 35 37 38 39
5'1" 21 22 23 24 25 26 26 27 29 29 30 32 33 34 36 37 38
5'2" 20 21 22 23 24 25 25 27 28 28 29 31 32 33 35 36 37
5'3" 19 20 21 22 23 24 24 26 27 27 28 30 31 32 34 35 35
5'4" 19 20 21 21 22 23 23 25 27 27 27 29 30 31 33 33 34
5'5" 18 19 20 21 22 22 23 24 26 26 27 28 29 30 32 32 33
5'6" 18 19 19 20 21 22 22 23 25 25 26 27 28 29 31 31 32
5'7" 17 18 19 20 20 21 21 23 24 24 25 27 27 28 30 31 31
5'8" 17 17 18 19 20 21 21 22 24 24 24 26 27 27 29 30 30
5'9" 16 17 18 18 19 20 21 21 23 23 24 25 26 27 28 29 29
5'10" 16 17 17 18 19 19 20 21 22 22 23 24 25 26 27 28 28
5'11" 15 16 17 17 18 19 20 20 22 22 22 24 24 25 26 27 27
6'0" 15 16 16 17 18 18 19 20 21 21 22 23 24 24 26 26 26
6'1" 15 15 16 16 17 18 18 19 21 20 21 22 23 24 25 26 26
6'2" 14 15 152 16 17 17 18 19 20 20 21 22 22 23 24 25 25
6'3" 14 14 15 16 16 17 17 18 19 19 20 21 22 22 24 24 24
6'4" 13 14 15 15 16 16 17 18 18 19 19 21 21 22 23 24 24

BODY MASS INDEX

Weight
height 205 210 215 220 225 230 235 240 245 250
5'0" 40 41 42 43 44 45 46 47 48 49
5'1" 39 40 41 42 43 43 44 45 46 47
5'2" 37 39 39 40 41 42 43 44 45 46
5'3" 36 37 38 39 40 41 42 43 43 44
5'4" 35 36 37 38 39 39 40 41 42 43
5'5" 34 35 36 37 37 38 39 40 41 42
5'6" 33 34 35 36 36 37 38 39 40 40
5'7" 32 33 34 34 35 36 37 38 38 39
5'8" 31 32 33 33 34 35 36 36 36 38
5'9" 30 31 32 32 33 34 35 35 35 37
5'10" 29 30 31 32 32 33 34 34 34 36
5'11" 29 29 30 31 31 32 33 33 33 35
6'0" 28 28 29 30 31 31 32 33 33 34
6'1" 27 28 28 29 30 30 31 32 32 33
6'2" 26 27 28 28 29 30 30 31 31 32
6'3" 26 26 27 27 28 29 29 30 30 31
6'4" 25 26 26 27 27 28 29 29 29 30

CAREGIVERS: (When your Loved One has Alzheimers) A late 1980's study showed that 3/4 of all persons that provided at home custodial care do so for seven days per week without a break. Yet only 9.7% ever sought help from the various community services- for example, the Area Agency on Aging. "...the sick person's welfare depends exclusively on their own sweat and toil- even though these efforts may be carried out in an atmosphere of resentment, martyrdom and exhaustion. This is clearly a biased and self defeating appraisal".

This critical commentary is an effort to get the caregivers- usually women and in their later 50's and older- to utilize the many services the community offers. Services that can provide even better care:

"Good home care personnel are highly experienced in the art of nurturing demented patients and are aware of the therapeutic tricks and shortcuts that only people who have nursed the feeble elderly person can really know about."

Probably one of the best care techniques is consistency. "Predictable routine is extremely satisfying for the patient".

And another issue the book comments upon is that while the caregiver has to adapt, it is not necessary to reinvent the wheel. For example

As with other recommendations regarding demented patients, the more visual you can make your requests, the easier it may be for the person to grasp what is wanted. For example, put pictures of dresses, socks, pants, etc. on the appropriate drawers since they tend to forget where things are.

And while we have all heard about the use of grab bars, the author notes that they should be painted separate and distinct colors so they stand out vividly to the patient. Use liquid soap instead of bar soap. Fasten loose rugs with double sided tape. Some patients can't tell the difference between hot and cold and can get scalded in the bath. So the suggestion is to lower your water heater temperature if this should become a problem. They also suggest the use of hand held shower heads. In the kitchen, use tamper proof oven knobs- even tamper proof water faucets. And this is quite unique- since demented patients have problems using kitchen utensils, take a 12" x 12" wooden board and nail two wooden dowels on one surface to form a right angle. It then serves as a caddy to hold objects in place- buttering toast, packages to be unwrapped, bowls to be stirred an more. Using double sided suction cups helps keep bottles and such in place.

Demented people lose track of where they are going. So paint arrows on the walls by the stairs to show them at least the are going somewhere. Place reflective tape on objects that the are continually running into. Again, notice the use of visuals.

And while you may think that the patient has lost all concept of neatness and hygiene, do try to make them look as presentable as possible. It will not only probably help their self esteem when they might be lucid, but it will unquestionably help YOUR attitude towards them since you may think of them as their "old selves". Let them dress themselves whenever possible. However, lay out all the clothes for them. Don't put them in a position of having to make a choice- that can trigger a frustration response. Make the decisions for them.

If the patient is incontinent, let them wear sneakers- they can be washed easily.

Some patients may appear to become finicky eaters- but that may be more because they no longer know how to use a fork and knife or it is simply too difficult. They suggest using finger food when possible. Another interesting comment is that a demented person may feel infantilized if their food is cut up at the table. Better to have it cut up before it is served to them. They suggest that if they person is not eating like the rest of the family, take some food and eat it yourself while looking directly at them. Demented patients tend to mimic others and apparently this trick works wonders into getting them to eat. And for some strange reason, caregivers say that demented patients like bananas and banana tasting foods.

And, of course, we come to areas that are far less than appealing- toileting. This cause embarrassment for all and apparently is one item that the demented patient is apt to remember as private. But how to help them- and yourself as the caregiver? Here were a few tips

Bathing- baths are considered safer than showers. Brookdale professionals noted that demented person tend to be frightened by showers where they perceive the violent downcoming streams of water as a threatening bombardment. Do not fill the tub more than 1/3 full. And never leave a demented person alone in the tub.

Communications- always try to pick a quiet and simple environment since demented person are easily distracted and confused. (That's also the reason you may take patients to the early bird dinners. There are fewer people to cause difficulty in hearing or other distractions.) So,

ANGER: (Brookings) Certain things are apt to set off a demented person

Brookings suggests that when a patient gets unmanageable:

DELUSION: Brookings states that it is a waste of time to try and disagree with a delusional person. But they also state that one should never agree with a delusion either. Seems like a dichotomy but they suggest that you stand your ground and neither affirm nor deny what is being said and done. Instead, as noted elsewhere, try to distract them with something different and get their attention elsewhere. They suggest food is an excellent distraction

IF YOU ARGUE WITH AN ALZHEIMERS PATIENT, YOU GET EXACTLY WHAT YOU DESERVE

Anna Ortegara RN, MS

DOESN'T LOOK GOOD: The Phoenix Student Fiscal Fitness Survey surveyed 1,200 students living in households with annual incomes of $80,000+. Only 28% could precisely define the terms "buying on credit" or "mortgage", 25% could define "budget" and between 3% and 7% could define "life insurance", "Social Security", "compound interest" and "mutual fund". Yet 54% expected to be wealthier than their parents.

MUTUAL FUND SCREWING: John Bogle has commented on this several times. Why, when mutual funds are increasing in size exponentially, are the management fees going up? Shouldn't economy of scale work? Well, yes they should. But with the market going up so much, consumers haven't bothered to pay attention to basics so the fund families could get greedy at the expense of the consumer. See how U.S. Diversified Fund families stacked up
Fund Company Expenses per $10,000 investment % change 1989- 1996
American 68 +7.9
American Express 103 +25.6
Fidelity 86 -7.5
Franklin Templeton 80 +17.7
Mass Mutual/

Oppenheimer

 143 +32.4
Merrill Lynch 129 -3.7
Putnam 134 +67.5
T Rowe Price 81 -12
Vanguard 28 -34.9
All U.S Equity Funds 96 +7.9

You MUST look at Vanguard when dealing with index funds or with bonds. Use of managed funds with significant fees will cause a lot of changes once the market changes. You just can't afford high fees. YOU CAN'T!!!!

HAVE AND HAVE NOTS: (Business Week) Long time readers will note my comment about a massive upthrow in society by about 2010 due to the rich getting richer and the poor getting poorer. Here is an example of what is going on- and it has to do with the average American workers wages. Every time we have a recession, wages fall. Then we have a recovery and wages catch up- but not really. Since 1973 wages have not come back so, when inflation is factored in, the average worker is making less today than years before. According to the article, at an average $10.49 hourly wage, wages are still about 8% below the all time high of $11.35 per hour in 1973 after inflation adjustments. And they won't get back to 1989 levels at today's 1.4% increases for another 3 years. And it is true that this huge growth has helped many increase their net worth. But the truth be known, few Americans really own much stock- if any at all. Some 71% of all American families own no stock/funds or less than $2,000 in total- and that includes 401(k) plans and pensions (MIT). The top 25% of all American families own 82% of all stock.

SOCIAL SECURITY: (FED Reserve Board of NY) We all know it is in financial difficulty. It will start using its surplus starting around 2012 and end up insolvent around 2029. One way to "fix" it and keep it solvent to 2070 would be to raise immediately the tax from 12.4% to 14.6%. An alternative would be to raise the rate to 16% by 2025 and thence to 18% to 2070. Both would be political suicide. One other recently noted revision would be to invest in the stock market and attempt to generate much higher returns instead of the lower returns currently obtained on Treasury instruments. Of course with higher returns comes higher risk. Since 1926, stocks have been twice as volatile as bonds.

Well, you may see some risk taking, but I think it will be more of an extension of what is going on now. You will need to be older before you get full benefits. Then the rich will be taxed more. Finally the rich will not get it at all and the program will revert back to original premise- emergency funds for the poor. That is easier to introduce than higher taxes.

COLLEGE LOANS: About 50% of last year's graduates left with loans averaging $11,500 which, under a standard repayment plan, cost about $141 monthly and will take 10 years to pay off.

WORKING WOMEN: (Alan Parkman) The conventional commentary why women are working is that they want to provide more family income. Parkman suggest otherwise by bringing in the issue of the high rate of divorce and the no fault divorce. Women must now rely more on themselves and less on the spouse for a high settlement. "....many women are taking jobs at least in part as insurance against the possible adverse financial effects of divorce. And the fact that many husbands are not pitching in more at home suggest an implicit awareness that more than "family welfare" is prompting their wives to earn that extra paycheck".

FIDUCIARY OBLIGATION??? The courts indicated that an insurance agent who had worked with the same clients for years apparently had NO ethical or fiduciary duty to tell such clients that more insurance was available or advisable. The 1st District Court of Appeal said that the agent was under no required duty to tell his clients that they could increase their policy limits form $100,000 to $1 million with no increase in premium- simply because they never asked about it.

DISABLED: I had read this before and was startled to find the numbers so high, but the recent Census Bureau numbers confirms that 10% of Americans are disabled. That's 24 million with severe disabilities. The greatest number are the elderly- over 65. About 10 million or roughly 40% of all severely disabled are seniors. About 1.8 million over the age of 65 use a wheelchair, and 5.2 million have used a cane, crutch or walker for more than 6 months. The employment rate for severely disabled who are 21 to 64 is about 26%. About 82% of nondisabled people are in the workforce.

Surprisingly 62% of the severely disabled do NOT receive public assistance.

TRUST PROTECTOR: Remember the heiress that died in Arizona. She left a $100 million trust where the three trustee want fees of 1% EACH!!!! The trustees's are her pastor, attorney and husband of one of her daughters. They said in court that they were qualified to handle such an estate. The plaintiffs said they were inexperienced (probably don't have a clue to the numbers for diversification- the simplest key to determining sophistication). Further, they had turned over most of the assets to Goldman Sachs. And Sachs is charging a transaction fee instead of a flat management fee. So why did all this crap happen? Simple. She picked people she could "trust", not people who were competent. The trust should have contained a trust protector clause so that an independent person could have come in and reviewed competency and fees. Make sure you put one in your trust.

FAMILY LIMITED PARTNERSHIP: The basic idea is for the parents to retain the general partnership interests (and control) while the kids get the limited partnership interests. Such value for gift purposes is lower due to discounts for lack of marketability and lack of voting power. They are not without problems and far from the panaceas that planners make them out to be. A group of attorneys had this to say. "Transfer stock or other investments to a family partnership....might come under the heading of "If You Shoot Yourself in the Foot You Are Entitled to Limp." Once a key insurance executive came up and questioned me about the use of his previously set up LLP. It seems that one child got a messy divorce and his ex spouse (someone they didn't like) was now entitled to a piece of the family's business. And another child decided she wanted out and moved away and the parents had to buy her interest back. It appeared that in an effort to simply reduce estate taxes, they had not thought through the problems within the family itself. They should have required that their kids keep the interests as separate property and maybe do a post nuptial agreement. Finally, it looked to me that they should have actually bought a life insurance policy until such time as they could be sure exactly what they should be doing, not necessarily what was dictated by taxes.

GOT LOTS OF MONEY??: If you give over your maximum lifetime exemption (currently $610,000), you will need to pay a gift tax. If you survive three years, the gift tax is deducted from the estate. That saves substantial taxes. For example, assume a heavy hitter with $10 million. If they leave it at death, and we assume a flat 50% tax, then $5 million is left for the beneficiaries.

But if you gave away the $10 million, minus

5 million gift and 2.5 million of gift tax leaves a

2.5 million estate; then

1.25 million of estate tax leaves

1.25 million which, added to the 5 million gift totals

6.25 million.

COMPANY STOCKS: more than 42% of assets in large company plans are invested in the employer stock. That's a real no no since it violates diversification.

CURRENCY EXCHANGE: A previous article from one of the Federal Reserve Boards stated that it was nigh on to impossible to determine what way currencies would move, how quickly or just about anything else. It wasn't quite a crap game, but it wasn't (it appeared) worthwhile to try and hedge against currency fluctuations. A most recent article in the Fed Board of Philadelphia pretty much said the same thing. "....exchange rates don't seem to be affected by economic fundamentals in the short run. Being able to predict money supplies, central bank policies or other supposed influences doesn't help forecast the exchange rate. Economists have found instead that the best forecast of the exchange rate, at least in the short run, is whatever it happens to be today". "We see that exchange rates seem to be influenced by market sentiment rather than by economic fundamentals. In practice, using the monetary, overshooting and the portfolio balance modes to make exchange rate forecasts is difficult because the analyst never knows the true value of the economic fundamentals."They do mention a new method called Garch (volatility clustering phenomenon to predict future volatility) might provide some insight, but it appears that it is too new and untested for reliable forecasting. In essence therefore, I just try to focus on returns WITHOUT relying on currency fluctuations to provide big gains. In the same context, if the returns are not projected that high in a foreign market, I need to realize that the higher political risk is tantamount to higher currency fluctuation and I could go from positive to negative quickly. As an example, look at Mexico. They looked like revamped economic miracles- then their entire country almost collapsed. The peso's value plummeted. It therefore appears that most people that are successful in gauging the currency movements may have been more lucky than anything else.

HMO'S AND THE DYING: A 1994 study noted that the HMO's are not providing expensive, extended and futile care to the dying. Medicare patients in managed care facilities were 25% less likely to "undergo aggressive and highly expensive care that ultimately proved futile."

"This suggests that HMO practices may be better at limiting or avoiding injudicious critical care near the end of life" per the Journal of the American Medical Association. And "death in and of itself may not be the worst outcome. If you don't want to die with a lot of tubes in you, then HMO care may be the place to be" They did say there is a financial incentive in that HMO's reward physicians for withholding unnecessary care- and that obviously provided some consternation. Finally, "it is normally good for physicians to do everything they can for a patient. But near the end of life, there are to be limits in order to be compassionate".

My father died in June a hard death. He even tried to commit suicide. The hospital tried many measures to keep him alive, but finally just put him on a Morphine drip and he died shortly thereafter. Could he have lived with extensive medical care? After the autopsy, they said yes- but he would have been bedridden and a potential vegetable in a nursing home. Beyond all this commentary is the decision YOU have to make on how you want to die. The article finished with "HMO's are wonderful for people who want to embrace euthanasia. For those who want the option of whether or not to receive costly life prolonging care, HMO's are not the place to go."

CAREGIVERS: (Alzheimer's Disease Survey, Alzheimer's Association) About 49% of family caregivers said that their caregiver duties cause stress within their immediate families and 48% said felt they did not have enough time for themselves.

Most caregivers have been caring for their loved ones for an average of four years and about 34% felt that they might not be able to do it much longer. The stresses obviously worsen as the patient's conditions becomes more severe. Caregivers treating loved ones with moderate to severe Alzheimer's disease were more likely than caregivers of those with mild Alzheimer's to describe their duties as 'frustrating' (90 percent), 'draining' (87 percent) and 'painful' (87 percent)."

AND YET ANOTHER SCAM: Four San Francisco brokers offered investments that were "safe and secure" to retirees. They were to give them $100,000 and expect a projected return of 20% to 50% within 3 to 6 months. Get real! The investment was actually a loan to new startup companies- essentially a type of venture capital which is unquestionably a high risk speculative deal. Another part of the scam was supposedly to manipulate the stocks of these new companies. The article noted that well heeled clients were wined and dined at the likes of America Bankers Club or lunch meetings at the Executives Association of San Francisco. An attorney said that his clients were good people...... Well, that is probably true. But they were stupid and greedy. C'mon- 20% to 50% in 3 to 6 months? You not only fell off the the turnip truck- you actually had to be a turnip to be that stupid.

MORE SCAMS: From a financial planning journalist- "What I am surprised about is how many scams are actually surfacing during this bull market. I would have guessed you'd see only one or two, with thousands to come if the market turned south for any extended period. If we are seeing so many scams being unveiled now....think of how many we will see in the months/years to come. It will be fodder for my journalistic attention.

Unfortunately, I think a bear market will be just the thing needed to shake out all the brokers/investment reps./planners who have been on the prowl and feeding on the good will of investors. It will also serve to weed out portfolio managers who have never even seen an extended down market. It will test how good they really are!"

TAI CHI: Many elderly fall down and it costs the economy multi millions in injury costs each year. About 6% of all medical care was spent on care of unintentional injuries, mostly falls. Such injuries are the 6th leading cause of death among the elderly and costs $4 billion annually. A lot of that is due to alcohol, but for many others, the falls may be lessened considerably. A study of 2,328 elderly Tai Chi practitioners were able to reduce falls by 13% and reduce injuries 25%.

OVERLY OPTIMISTIC: (Montgomery Asset Management) Their survey from November to early December 1997 indicated that "74% of mutual fund owners expect their portfolio holdings to consistently beat the S&P 500 every year (joke); 79% did nothing following October's sharp market drop (O.K.); and 88% believe their current portfolio is properly structured to withstand a significant market correction (we'll see)."

CBO's: Are you familiar with CMO's- Collateralized Mortgage Obligations? Simplistically stated, they take the returns on pooled mortgages and split them into different payback period called tranches. The various tranches have various risks and some can be very high. Well, the new kid on the block is the Collateralized Bond Obligations where the issuer takes junk bonds and splits them into two different groups. The first is a slower interest bearing investment than the group as a whole but sports an investment grade rating (BBB and above). The other part- representing maybe 5%- is the equity portion of the CBO that takes the brunt of the defaults and losses but would pick up any of the substantial gains if the defaults were low.

Some parts of this sound acceptable, but I remember when CMO's came on line. Since they were untested, I stayed away, even with all the analysts saying that they were they greatest thing since hot water. I also remember millions of dollars being lost when these young analysts used them willy nilly. I'll wait on this, thank you.

REVERSE MORTGAGES: These normally represent bad planning but can provide relief for those that have not done adequate review of their finances previously or that may have limited assets in the first place. But here is a new twist on reverse mortgages that could help many. It is available for homeowners age 62 and older that can take out a reverse mortgage at the time they buy a home. It involves people who retire but don't have enough money to buy a new home in their selected retirement area. The program was developed by Fannie Mae and works like this. Assume Mom sells her home up north and wants to move south. With these proceeds and her savings, she has $100,000 to get a new place. If she tried to buy a house, her income is so low that she would have to pay all cash. However, she could apply for a "Home Keeper" loan and be able to keep $52,000 in cash to live on/use for emergencies. In this case, she can pay $48,000 down and get a reverse mortgage for $52,000 at 9%. But she will not have to make any payments on the reverse mortgage as long as she lives. And if she outlives the equity, the lender eats the difference. Key Facts

The older you are, the more money you can receive. Here is a chart.
New Home Price Borrower's age Down Payment Reverse Mortgage
$150,000 68 $105,700 $44,200
$150,000 73 82,300 67,700
$150,000 78 65,200 84,800
$150,000 83 52,300 98,700

For info, call Fannie Mae at 800 732-6643

MEDIGAP PLANS: These are Medicare supplemental plans that help pay for the deductibles in Medicare A and B. Agents and companies abused the sales by selling the elderly innumerable redundant polices solely for the commissions. Congress finally mandated that only 10 plans could be sold nationally. But the plans vary tremendously in price- even for the same plan. That's why it is imperative to review plans from various companies. But not only that, rates between states vary as to the amount of claims that the companies experience. For example, a no frills plan A in Florida costs the highest nationally at $1,812 with American Republic Insurance Co. That's about 7 times what Anthem Life Insurance Co. subscribers in Texas paid, at $242.

The most comprehensive plan in Florida from American

Pioneer Life Insurance Co. cost $3,985 annually -- three times the $1,126 what South Dakotans pay South Dakota Medical Service Inc.

Pioneer Life Insurance charges $402 for Plan D in Delaware while the identical plan in Florida is $1,971.

Like the man says- it pays to shop.

HOSPICE CARE: Used to be a blanket statement that hospice care was cheaper than dying in a hospital. Maybe not so true anymore. There is not much question that if you are in a terminal condition that hospice tends to let you die with dignity. But as hospice became more known, many people opted to lobby Medicare to increase its benefits. Now hospice will cover costs up to $500 per day. Studies have show that even some non terminal patients have been admitted for care- even for those with dementia (due to lobbying by relatives). As with the commentary elsewhere on the fraud and waste in Medicare, here is just one more reason why the Medicare budget is way out of line.

MEDICARE WASTE: As mentioned previously, hospitals have found a way around the strict Medicare rules. They are taking empty beds and converting/renaming them to SNF- "Skilled nursing facilities" The care may not be materially different than under Medicare (and its flat rates) but under the SNF rules, they are considered separate facilities and can charge their own rates- often exorbitant. For example, knee surgery might cost $9,000 for a multi day stay. But if the patients are then switched to an SNF, the hospital can charge an additional $700 per day.

HOME HEALTH CARE WASTE: Previous experience showed that it was cheaper to provide some home health nursing care rather than put a patient into a facility full time. But such home health care entities sprouted like weeds when they found that they could charge from $40 to $90 for a visit that might incorporate no more than 20 minutes. Some even treated patients up to 300 days per year- certainly far more expensive than in a nursing home. In 1997, there were more than 9,100 companies billing Medicare over $18 billion a year. Part of the problem was nebulous definitions. For example the definition for home health care is when a patient is "homebound"- but there is no definition that defines exactly what that means. This is being revised now.

ASSET ALLOCATION: If you read the major literature on how to invest, they focus on using various classes of investments as the best way to invest. Such major studies say that determining what classes you should be in provides 91.6% to 93.6% of the total return of a portfolio. A study in the 1997 Journal of Financial Planing says that that amount is only 14.6% and Morningstar study said 16.5%. So what is the truth? Well, by the time you digest all the rhetoric, it probably is more like 75%+. Still, that represents a significant portion of a portfolio's return and cannot be dismissed lightly. So, if roughly 25% is from stock picking, can the average investor do it? Maybe, but I think the preponderance of returns will be due to luck or outside influences irrelevant to t he investor's capabilities. Want proof. And investor has to know what diversification represents-"how many stock must you have in a portfolio in order to insulate it from unsystematic risk?" If they can anser that correctly, fine- they maybe able to pick stocks objectively and knowledgeably. If they do not know how the answer is derived, then you simply have someone picking stock due to testosterone poisoning.

FINANCIAL ADVISER: (Dalbar) When asked what they most want from a financial advisor, 83% of 4000 consumers listed education first, 80% said minimize taxes, 70% said highest returns, 68% said protect from loss, 68% said prevent mistakes, 64% said written plan, 63% said help define goals, 58% said change investments.

PRAYER AND HEALING: More than 90% of HMO executives believe that personal prayer, meditation or religious practices can aid in medical treatment or expedite the healing process.

CHARITABLE REMAINDER TRUST: The new tax law imposed restrictions which will severely limit the use of these trusts. The first limit restricts the annual amount which can be paid out to no greater than 50% of the fair market value of the assets in the trust. The second, and more restrictive, provides that the present value of the charitable remainder interest of the trust must be at least 10 percent of its initial fair market value. This, in effect, limits the present value of the interest going to beneficiaries to be no more than 90% of fair market value. The Charitable Remainder Unitrust (CRUT) is the one most impacted by these restrictions. Under the old law, CRUTs were able to allow for a payment stream nearly at 100% percent of current fair market value. However under the new law, a Unitrust which provides benefits for the life of the beneficiary can no longer be established for younger individuals since the longer payout period would result in remainder interest to the charity of less than 10% of the original fair market value of the property transferred. As an example of the new law, a CRUT could not be established with a single life beneficiary under age 21, nor with joint lifetime beneficiaries both age 34. What that really means is that there is a severe limit on the ability to include children and grandchildren as beneficiaries of the trust. CRUTS with term certain periods are also restricted. For example a CRUT with a 20 year term certain cannot exceed a 10% payout. The maximum payout rate for a CRUT with a two-year certain period would be 50%. How to figure out this mess of new laws? Simply utilize a major charity. They have the software already in place and can help you every step of the way.

FAT SMALL CAP STOCKS: Admittedly the definitions for the size of small capitalization stocks can vary from analyst to analyst. However the WSJ noted that Morningstar had the size of a small cap at about $541 million in 1993. In 1997, it was now at $861 million. Sure can make a difference in what you invest in.

10,000 DOLLAR CHARITABLE GIFTS: Individuals who give entire interests in property in excess of 10,000 dollars will not the required to file a gift tax return to report these gifts. However partial interest gifts will still require a gift tax return.

QUALIFIED FUNERAL TRUST: The trustee of these trusts may elect a special tax treatment so that the trust will no longer be treated for income tax purposes as a grantor trust established by the purchaser of the trust. Such qualified general trust cannot except more than $7,000 in contributions for the benefit of any individual.

ADVICE: (WSJ) relatives and friends, 68%; accountant, 22%; banker, 22%; financial planner, 18%; stockbroker, 15%; lawyer, 15%; insurance agent, 10%; no one- relying solely on oneself, 10%; don't invest in financial products, 2%. My comment- anyone using friends and relatives for investment advice is a twit.

WHERE DO PEOPLE INVEST: Individual stocks, 31%; mutual funds, 30%; certificates of deposit, 27%; bonds, 25%; annuities, 15%; limited partnerships, six%; commodities, 4%. Source opinion- Research Corp. International.



ERROLD F. MOODY JR.

BSCE, LLB, MBA, MSFP, PhD

2295 W. Ave 133

San Leandro, CA 94577

Phone & Fax 510 352-4127

EFM@EFMoody.com