MOODY'S REVIEW

FEBRUARY 1999

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

UNBRIDLED OPTIMISM: (PaineWebber/Gallup Index of Investor Optimism.) Optimism among American investors increased significantly last year, indicating greater confidence in the Federal government's ability to achieve fiscal reform and in the continued steady growth of the economy. The index also shows that optimism among female investors has improved considerably, though a gender gap remains and has nearly tripled since it was first identified in October 1996.

"The index reveals that investors perceive they are taking little risk to realize their financial goals and display a lower perception of risk than conventional wisdom might suggest. Investors consider futures and commodities the riskiest investments, but assign them only a rating of 6.6 and 6.4, respectively, on a 10-point scale, with 10 representing high risk and one representing no risk, according to the index. Yet despite the lower-than-expected perception of risk, investors say they do not need high risk investments to achieve a good annual return, which they define as from 10 % to 15 %."

"A combination of factors, including broad investor education initiatives and greater access to financial information, has contributed to investor perception that markets are safer than ever. However, the index suggests that many investors are unknowingly assuming a significant degree of financial risk, which indicates the industry must take an even greater role in educating them about the degree of risk associated with the investments they own."

As may be expected, "male investors remain much more optimistic than female investors. The gap in optimism between the sexes dropped to 42 points, based on an increase in optimism of 30 points among women since the last survey period." However this difference is not necessarily bas3ed on skill- simply the aggressive tendencies of men towards investments and an (undeserved) perception of competency.

Risk Assessment- "67% of investors rated their portfolios with a "medium" risk level, assessing a score of 4 to 7, on a 10- point scale, with 10 representing high risk and one representing no risk. Only 7 % rate their portfolios as "high" risk, while 26 % give their portfolio a "low" risk rating." While the makeup composition of "low" risk portfolios is significantly different from "medium" and "high" risk portfolios, with low risk investors holding substantially more certificates of deposit and money market investments, there was little difference in the holdings of portfolios rated "medium" and those rated "high" risk. Investors consider futures and commodities the riskiest investments, but assign them a score of only 6.6 and 6.4, respectively. The stock market is assigned a risk ratio of 6.0 on a 10-point scale."

Although the survey was done last year, it seems identical to recent commentary and actions by consumers- specifically Internet stocks. They are taking risks they have no idea of to get returns that are inconsistent with past history. Bottom line- optimism breeds unacceptable risks assessments.

SELF-EMPLOYED HEALTH INSURANCE DEDUCTION:

	Percentage Deduction
1998- 1999	45%
2000- 2001	50%
2002	60%
2003- 2005	80%
2006	90%
2007	100%

HEALTH INSURANCE: Kaiser has increased my premiums by 11% due to higher costs they are bearing- new union contracts, etc. Should such rises- for whatever reason- happen nationally, fewer people will keep coverage. A 1996 study by the Congressional Budget Office said that a "1% increase in the cost of health coverage would result in more than 200,000 people either losing or not obtaining health coverage."

Then add this from Employee Benefit News Online: A survey of 600 small as well as larger companies found growing resistance to paying the full cost of employee health care. Although 27% of the companies surveyed currently pay the full cost, only 9% said they should continue to do so. Fully 40% said they would prefer to contribute no more than 50% of the premium cost, and half said their employees should be covering more of their family members' health insurance cost.

MARKET TIMING: There is still an intense fascination with moving in out of the market in an attempt to pick the highs and lows. And those people utilizing 401(k) plans have an added a should since none of the trades are taxable. But does timing the market really work? The Hulbert Financial Digest review 25 newsletters with 32 portfolios and found that none of the newsletter timers beat the market. With a 10 years ending December 31st 1997, market timers averaged from 5.84% to 16.9%-the average being 11.06%. However the S&P 500 index earned 18.06% and the Wilshire 5000 value weighted total return index returned 17.57%. Another ten-year study showed averages from 4.4% to 16.9% a year with the average of 24 market timers at 10.9 %. Even when adjusting for some esoteric risk return average, market timers were still far below the average of the by and hold.

After reviewing extensive reports and articles, the use of market timing might only be viable for tax sheltered accounts-certainly not for core funds that are taxable. Even so, the odds for success for the professional-nevermind the average investor-is so limited and so time-consuming as to be essentially a futile exercise, particularly in a bull market. I would add this cautionary note however that it still does pay to be vigilant. Consider the market around 1974. If one had stayed in, they would've lost or 40%+ of their equity and it would've taken about 12 years in order to break even with a present value investment in treasury instruments. And that case, it certainly would've been worthwhile to a been out of the market for about two years.

In summary therefore, it is best to leave your core funds alone and only adjust in severe economic downturns.

You have to stay in shape. My grandmother, she started walking five miles a day when she was 60. She's 97 today and we don't know where the hell she is.

Ellen DeGeneris

SIMPLE (?): Among the minority of small businesses offering tax-qualified retirement plans to employees, those preferring the administratively simple Savings Incentive Matching Plan (also called a SIMPLE IRA plan) to the Simple 401(k) plan do so by a surprising 429-to-1 ratio. A recent Investment Institute survey found that small businesses with 100 or fewer employees set up over 18,000 SIMPLE IRAs during the first six months of 1997--the time span covered by the survey. Only 42 Simple 401(k) plans were established by small companies with fewer than 100 workers. What this suggests is that SIMPLE 401(ks) may impose fewer administrative costs than standard 401(k) plans but they are apparently still not simple enough for most small businesses.

401(K) PLANS: (Spectrem Group) They now total about $1.8 trillion at the end of March 1998. This is up from $985 billion at the end of 1997 and $475 billion at the end of 1993. There are about 270,000 companies offering 401(k) plans to more than 25 million American workers. More than 37 % of the 401(k) assets are invested in mutual funds.

HEALTH-CARE COSTS: Health-care prices are expected to increase at a rate still faster than the inflation or CPI at about 6.4 % annually.

FAT CHILDREN: (Tufts University) "They show early signs of heart disease such as high blood pressure and cholesterol. And they are unlikely to grow out of it - most children who were fat at nine were still fat at 11. A report noted that "The overweight children had significantly higher blood pressure, total blood cholesterol, low density lipoprotein or LDL cholesterol, the so-called bad cholesterol, and lower high density lipoprotein cholesterol or HDL cholesterol, than their lighter peers."

I was fat till I was 19. I have only one fat cell, but it is HUGE. I love anything with salt and sugar. So how do I keep my weight down? Sweat is a big key, but what the doctors don't tell you is that once your body gets used to they exercise, it is simply the food you stuff in your mouth that determine whether you put on more weight. So I simply have to watch what I eat. It's either that or probably die a long and hard death.

VIATICAL SETTLEMENTS: This commentary of mine was printed in the SF Chronicle You may find it useful.

"I would suggest a terminally ill consumer contact a viatical company only AFTER the owner had contacted their insurance company FIRST. Even policies without riders may have had them recently approved. In fact, a 1994 study of 230 companies holding 70% of the life insurance in force in the U.S. show they either make or were planning to make some type of accelerated benefits available and one certainly has nothing to lose by making a phone call. Further, most insurance companies are offering "buyouts" at more than a viatical company would (normally never higher than 75%, if that). The National Association of Insurance Commissioners has adopted model regulations of at least 50% of a policy's benefits if the individual is expected to die within a two year period. If the individual is expected to die within six months, the payments are to be at least 80%. Unfortunately, these are NOT mandatory requirements by viatical companies so one should do a lot of homework before using.

An even a better solution would be to contact the beneficiaries, relatives and friends to see if they want to pay instead since they could be recipients of the entire policy. Better they get it. Further, there would be far less stress on the ill person- though that might/should still require an attorney to document everything properly. The beneficiaries might provide the payments through home refinancing, home equity loans or other- but they would/should be more than reasonably compensated by the full value of the policy.

I would also note that some companies offer payments for catastrophic illness- not just terminal."

YOU WILL READ THIS: Asked to cite the single most important factor for marital longevity, respondents who had been married 10 years or more said communication was the chief contributor. Commenting on traits they admired most in their partners, respondents said kindness and caring were their spouses' finest attributes. A good sense of humor was valued by many respondents, who also said that friendship was a key element to a happy marriage.

KA BOOM: (Del Webb Corp) Boomers think their parents worked harder for less money, but that their social values, family lives and jobs were more secure.

Also Boomers have gotten a bit more financially savvy over the years. The number of baby boomers who are investing in stocks, bonds and retirement plans is on the rise, as evidenced by a survey in 1998. A full 48% of boomers in the 39-44 age group, 47% in the 45-51 age group and 41% in the 33-38 age group said they have investments.

I DON'T NEED NO STINKING DIRECTIONS: "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."

It's for this same faulty reasoning that men say they do so well at investing. Actually don't have a clue but are normally unwilling to admit otherwise. It's almost universally the market that has driven their success in stocks- not them. Don't believe me? Ask yourself, "how many stocks do you need to have in a portfolio in order to insulate it from unsystematic risk?" If you don't know the number, you don't know investing.

MUTUAL FUNDS: the 1997 investment company Institute study found that 37 million U.S. households, about three in every eight families, owned mutual funds. More than 70 % of the said incomes under 75,000 dollars.

OLDER: ( U.S. Bureau of the Census, Americans) The 50-59 age bracket will increase by 50% by the year 2006, and the country's fifty something population will expand to about 38 million by that year. The bureau further projected that by the year 2020, eight states, including: Nevada, Arizona, Colorado, Utah, Washington, Georgia, Alaska and California, will double their older populations. And in the next 20 years, the bureau reported, America will see a 76% increase in its 65 and older population as baby boomers reach their retirement years.

INSURANCE LAPSE: It is normal for people who no longer need life insurance (with specific reference to business insurance and key man insurance) to simply let the policy lapse for the surrender value, pay tax (if any) on any gains and be done with it. But here is an example of what can happen. Assume a business had a term buy-sell policy for $1.75 million owned by a business owner . Instead of lapsing the policy, the owner took the policy to a separate company who bought the policy outright for cash even though the insured was not "terminal" (as usually required in viatical settlements). They did an underwriting review and converted the policy to a permanent policy in order to assure the subsequent payment at death. If you are wondering about the mandatory insurable interest- it must exist at the time of the initial policy but thereafter.

Here is a bigger example- A 70+ year-old man is insured for a combined total of $25 million in corporate and individually-owned policies, plus $2 million in survivorship and another $2.5 million on his board of directors. He and his wife both are in marginal health. The directors are also all 70+ years. They were considering dropping most, if not all, of the coverage, but instead decided to utilize a lifetime settlement. Due to age, health and other factors, the total settlement was in excess of 50% of the face amount.

INVESTING IS EASY ISN'T IT?: Well, it really should be good for Schwab since they deal with stocks and funds all the time. Yet Money magazine noted this in an early 1998 study of Schwab fund recommendations: Number of stock funds that had made every Schwab list since 1993. ZERO. That's right, 0, nada, zilch, none. And it distributes its recommendations of funds each quarter to about 500,000 investors.

Money reviewed the 35 domestic equity fund list of the first quarter of 1995 but found that 20 had dropped to the bottom half of their peer group over the subsequent 3 years. Only 4 remained in the top quarter of their categories. And not one fund is in their most recent list. One problem is that they supposedly pick the hottest funds going. That's not investing- that's sales.

MOVING: In a Del Webb study some time ago, of those boomers who said they would relocate upon retirement, 42% thought southeastern part of the United States looked appealing, while 23% looked to the mountains.

RETIREMENT SURVEY: In the same Del Webb survey, they found that 81% said they are saving money for retirement and most began a retirement fund at about the age of 30 (sounds like an absolutely upscale market). Only a little less than half (40%) of all boomers expect investments such as 401Ks, IRAs, etc. to be their primary source of income, followed by pensions (22%) and Social Security (17%). When asked to estimate their retirement income, respondents said they expect to receive, on average, about $38,000 (in today's dollars) a year after retirement.

INTERNET: There were about 3,000,000 users in 1994. It's up to 100 million now (about 62 million in the U.S. alone) and doubling about every 100 days. It is not the same type social evolution as electricity, but it may come close. The difference is that "everyone" can use electricity easily. However, purchasing and using a computer will separate further the haves and have not. The only way that can be avoided/reduced in the U.S. is to equip every school with computers and Internet access. Won't happen, particularly where the parents are scared of technology. Admittedly, there is a lot of trash on the Internet and some concern is justified, but that's where parents and teachers are/were supposed to provide guidance. That also ain't gonna happen so society's woes are apt to increase causing a big social upheaval about 2010 (mentioned several times previously).

In fact, a corroborated these statistics. Fewer than one-third of black students own a home computer, compared to 73% of white students, according to a study published in the Journal of Science. This difference remained even when adjusting for reported household income, researchers at Vanderbilt University in Nashville, Tenn., said. "This is the most disturbing instance yet of when race matters in Internet access," they wrote.

MEDICAID, MEDICARE AND LONG-TERM NURSING-HOME CARE: An "estate planning" article talks about Medicaid planning and the ability to remove assets through a "business interest"  so that a person can "effectively" utilize state funding for long-term care. What is noticeable to me is that the commentary is similar to what I read with the various tax shelters in the 1980s. They used to spend a LOT of print and attorney rationale justifying why their offering was- or should be- exempt from securities law. You could almost smell that this "estate planning" was essentially a convoluted rationale that was probably not going to pass muster later on either (though only time will tell). Anyway, there was extended commentary about transferring assets as an exchange for a business interest (not a transfer of assets) and the fact that "you can 'go into business with this promoted business venture without any substantial effort (doesn't that sound a little too convenient) on your part". As such, the firm "never recommends that you give assets away, they recommend an EXCHANGE of assets for a business interest. This exchange does NOT create an "ineligibility period" and their "non-transferable business interest" is NOT subject to a Medicaid spend-down."  Therefore, Medicaid supposedly does not have the right to attach these assets for payment of long-term care. It has, apparently, also been supported by court cases-though I have not checked them out. Will it work? I don't know. Would I use or recommend it? Not a chance.

As for proper planning, assume you are healthy and want to pass on as much assets to your beneficiaries (most often your children) as possible at death. You could attempt this "business strategy" or some other type of  transfer. But beyond the attempt to get assets beyond Medicaid is the fact that you better be absolutely sure you want to die in a Medicaid Ward with a bunch of other screaming Alzheimers patients. And if you do not know the difference between the level of care between Medicaid and Private Pay, you probably should be in a home to begin with. That's because the lack of the limited financial resources allowed for Medicaid patients may commit them to substandard care in substandard homes (though not always. This is NOT a diatribe against Medicaid per se since there are good homes and caregivers.) But look at the problems identified in the WSJ and NBC news. One of the major nursing homes in the South was "caught" turning away and OUT Medicaid patients because they were losing money on them. They stated that Medicaid paid $82 a day for care wherein the actual cost to the home was $95. Private pay patients were paying $125 per day. You should be able to see that the difference in payments between the two ($42/day) would almost undoubtedly make a difference in potential care.  This scenario is not an isolated case- 125 nursing homes nationally pulled out of Medicaid in the last two years.

Also, don't expect Medicare to help. In fact, it is not now, nor has been, nor will be, designed to provide any long term care at all unless it is skilled care- which represents only about 0.5% of all patients. Some ill people have attempted to use home health care services as a substitute for long term care. Since the rules were rather ambiguous, a lot of home health care services jumped onto the money bandwagon, providing (at times) unnecessary and/or overly expensive services which subsequently drove both the Medicare and Medicaid home health care budgets through the roof. some of the elderly complain that as the rules are tightened, home services will be reduced and they will be left in the lurch. Partially true. But irrespective of personal feelings, the government cannot afford cradle to the grave coverage. Look at the trouble social security is in and that's due to our glorious politicians who "know how to budget and plan"- though kudos to Moynihan and his efforts for years.

So do your planning early and utilize the various policies that can provide adequate care when you are infirmed- assuming you can afford to do so. Don't buy a policy if you were going to go on Medicaid anyway since your income/finances were limited.

Currently there area about 1,385,000 nursing home patients- 771,668 are paid for by Medicaid.

COUGH: The chairman of the European Respiratory Society said cigarettes were more lethal than handguns, hard drugs, suicide, AIDS and automobile accidents combined. More than 500,000 people in Europe die from smoking-related diseases every year.

REAL ESTATE TAX: You may know that a couple will incur no tax on a residential house to $500,000 of gain if you have lived in the home for at least two years. But what happens if you have to move- say for job relocation- in just 18 months? Out of luck? Nope. Assume you made a $100,000 gain. Can you eliminate 18/24 or 75% of the $100,000 or $75,000? Well, better yet, apparently. You could offset 75% of the $500,000 which would give you $350,000- far more than the $100,000 gain. Such a deal. But- as with all the stuff on my pages- don't do anything without first contacting an expert.

ETHICS

Being ethical is professional but the gesture goes beyond the mere compliance with law. It means being completely honest concerning ALL FACTS. It means more than merely NOT telling lies because an incomplete answer can be more deceptive than a lie.

ETHICS AND FINANCIAL PLANNING: Additionally, it is my statement that literally all the major planning organizations- if not actively, at least passively- promote illegal and unethical planning in many states. California- as well as 21+ other states- have requirements for licensing where such organizations know that some of their (top) planners are in direct violation (some are even on the organization's boards). One of the biggest violators in California is NAPFA- marketed as the "preeminent group of fee only planners". Not one of their members is licensed to do comprehensive fee only planning in this state (see further commentary below. Also see ethics). Of course, most NAPFA members dislike me with a passion. But a highly respected national adviser had this to say (independently to a non involved third party) after attending the recent Eastern NAPFA meeting- "(I) met some of Errold's California detractors, and they did not impress me favorably at all."

MORE LONG TERM CARE: "Long-term care related issues cost employers $29 billion a year in lost time, lost employees, and lost productivity" per HIAA. The U.S. faces a looming crisis because long-term care is the largest unfunded liability facing Americans today and the single major catastrophic expense facing today's elderly and tomorrow's retirees. With annual nursing home costs averaging $41,000 today and increasing to about $100,000 in 1996 dollars by the year 2030, such expenses can indeed cause financial ruin."

So I ask, what are you doing about it- either for yourself or a parent? Don't sit idly by and hope that something won't go wrong, particularly if your genealogy indicates you might live till 80 or so (when most long term care is needed). By the same token, don't go out and buy the cheapest thing available or one from an agent or financial planner who took one course (if that) in the subject. These contracts are NOT easy to figure out. As an example of the problems, one MAJOR company offers a home health care option- I'll say a customer bought a $100/day coverage. So if a nurse came to the home and charged $50/hour for two hours, the patient would pay nothing, right? WRONG! The contract only pays to a maximum of $25/hour and therefore the patient has to come up with $50 out of pocket. Frankly, although the "caveat" is printed in the contract, I don't think 99 44/100% of the purchasers are even aware of it, that 100% had been told of it by the salesperson nor that the salespeople even knew about it. I think it is unethical- but ethics is not a primary focus in today's society. (The national general sales manager for the company did not even know it until I bought it to his attention. True statement.) Don't ever buy insurance from (just ) an insurance agent. You need to do a lot more homework. 

BAD CHARITIES: From author Kathleen Kelly of "Effective Fundraising Management" comes this list of charities you NEVER want to deal with since about 90% of the monies raised goes to fees and expenses.

American Institute for Cancer Research-Washington D.C.; Cancer Fund of America-Knoxville TN; National Children's Cancer Society-St. Louis MO; Pacific West Cancer Fund-Seattle WA; Cancer Center for Detection and Prevention; Project Cure-Dallas TX; The Alzheimers Disease Fund; Center for Advanced Heart Research; Center for Alternative Cancer Research; United Children's Fund-Knoxville TN; A Child's Wish; Walker Cancer Research Institute-Aberdeen, MD and The National Cancer Research Center.

Be nice to your kids. They'll choose your nursing home.

MEN AND RETIREMENT: Many men have problems once the retire since work was everything they did and were. Gail Sheehy suggest that man review the following issues

1. Are you preparing to make the crossroads of midlife

2. Are you ready to search for a new direction leading to more meaning.

3. How do you plan to prolong your physical health

4. Do you know how to maintain your sexual potency

5. What things can you do to nourish your spirit

6. Are you willing to risk deeper intimacy that will offer you a buffer against the inevitable losses of middle and later life.

POPULATION: There are over 6 billion human beings on Earth (you are probably one of them). Every second five people are born and two people die, a net gain of three people.

MORE MEDICARE: An AARP study in 1997 found that Medicare Enrollees spent in average of 2,149 or 19% of their income for out-of-pocket health care costs, excluding the cost of home health care and nursing home care. Medicare paid, on average, just over five thousand dollars in benefits per beneficiary last year.

Medicare Enrollees living below the poverty line-7,775 for individuals and 9,780 for couples in 1997-spent 35 % of their income out-of-pocket on health bills.

About 3.8 million Medicare Enrollees get some form of home health care.

Scientists warned parents that smoking and high room temperatures increased the likelihood of crib death

EUTHANASIA: Recent surveys indicate that about 11% of doctors would help a terminal person die. But three times as many said they would do so if there were laws on assisted suicide. 24% would give a lethal injection if legal- only 7% would do so now.

Only about 20% of us will die "nicely" The rest of us will go in pain, mess, and degradation. My father died a hard death in 1997- something I refuse to have happen to me. Decide how you want to die. Do a Physicians Directive/Living Will or whatever is required in your state.

STOCK MARKET TOO HIGH?: A Salomon Smith Barney analyst  stated that "stock values, based on the price to sales ratio, nearly doubled between 1954 and 1958. Stocks then followed that up by rising for another eight years. But between 1968 and 1973 market valuations were cut in half. But buying on that signal of cheapness in the market would have put you into stocks just before 1974, one of the worst years in recent history for equities."

"The last time the market looked really cheap, it went down for a couple of years. The last time it looked really expensive, it went up for another four years." Valuation, in other words, can be a very misleading indicator. "It is not that valuation does not matter. It is just that it matters two or three times every 25 years. And you don't know when that will be."

Since I have taught securities and investments for a long time, I am intimately familiar with all the ratios and past statistics used to evaluate stock pricing, etc. And I did note in the early 80's that I could not fathom how the market could move that much given the high trade and budget deficit. However, there were a couple of "generalities" that I have learned over time. Don't get so wrapped up in your own ego that you can't review other non conforming data that might have a lot more bearing on the market's move. Further, there were two major factors that made me think we has some growth opportunities- Volcker and Greenspan. If they were able to "pull off" low interest rates and low inflation, I thought we were in for a winner, irrespective of other restrictive data. And that's what happened. It wasn't Reagan or Bush or Clinton or some blowhard politician that brought about these golden times. It was two guys who, through their inimitable style and effort, made this nation- and the world in general for that matter- readjust their entire economic philosophy. Since inflation and rates are staying low, that is what makes me think that some further prosperity is available. Nonetheless, past history clearly shows bumps in the road ALWAYS exist, so it pays to be vigilant and keep doing your homework. READ, READ, READ!

WOMEN: A B of A survey indicated that 75% of women said retirement planning is a most important issue but 91% said they had little to moderate investment experience. But they absolutely need more education since they "control" a lot more of the financial marketplace than previously realized. Recent comments indicate that they buy 83% of all consumer goods and are involved in 95% of the financial decisions that experts previously thought were made by the husband alone.

Women have been led to believe they didn't have the skills or fortitude to do proper investing by a male dominated brokerage community. Two items are notable- one good, one bad. The bad is that the brokerage firms started offering "women only financial seminars" to generate the additional business. It worked, but a lot of the clients are still nothing more than paychecks since the women brokers are just as much of a twit and unknowlegeable as the men brokers. After all, no broker, through licensing training, has ever been required to know the fundamentals of investing. The good news is that women are actually very good at investing when they put their minds to it. In fact they beat men (women only versus men only investing clubs). They do better research and are not as impulsive as men in submitting buy orders.

VIOLENCE: Men have twice as many fatal accidents as women and are victims four times more often.

HEART DISEASE: Stated many times previously, numerous women think that breast cancer is their greatest problem of dying. Nope, it's heart disease- made all the more difficult for them since most of the prior studies were done on men and little recognition was given to the women. (More women die of heart disease each year (471,000) than men (424,000). The problem may start 10 years later for women (probably due to estrogen) but then really takes a toll. From a 1991 study:

Age	Male	Female
15- 34	2,924	1,491
35- 54	31,745	11,026
55- 74	149,521	84.865
75+	174,625	263,041

INDEX vs ACTIVE MANAGEMENT: If you read a lot about the difference between the two strategies, you will undoubtedly hear that active management produces lower losses in a downturn since the manager can convert to cash faster and thereby cut overall losses. But the WSJ noted that in the last five of seven market downturns, owners of the S&P 500 index actually fared better than the actively managed stock funds. If you just look at July 17th to August 6th, actively managed funds lost 10.69% while the S&P lost 9.61%.

STATE COLLEGE PLANS: Parents can contribute up to $50,000 to a fund for a child's college education. If a state has set up the savings plan, the appreciation becomes taxable to the student who is, normally, at a much lower tax bracket than the parent would be. Proceeds can be used for room and board not just for tuition. If the child does not go to school, the account can be transferred to another beneficiary. If the parent takes out funds, they are taxed at the parents ordinary income tax bracket PLUS an additional 15% penalty.  If available, you get most of the benefits of a UGMA/UTMA without having to give up control of the funds. That might be worth 15% right there.

HOW TO GET $6 MILLION: State prisons and local jails started a concerted effort to catch inmates who were collecting benefits while incarcerated. Well, in the 15 months between April 1, 1997 and July 1, 1998, California reported 2,908 inmates to Social Security and got a bounty of $991,200. Nationally, 17,280 inmates were turned in for a total of $6.2 million. Until just recently, anyone who went to jail was to VOLUNTARILY notify Social Security if they were convicted of a crime (and just who is the idiot who thought that might work!!!).

INSULIN: Dr. Kalevi Pyorala of the University of Kuopio said that testing for high levels of insulin is as good a predictor of who will have a heart attack as are high cholesterol levels. "Over 22 years of follow-up, the predictive power of insulin levels was of the same magnitude as that of cholesterol levels."

STOCK GAINS: Many of you have seen these recent statistics but they are most troubling in an area that only a few articles have addressed. While true that many people don't save much in this economic environment since they figure the stock market will bail them out, 59% of all Americans have effectively received no benefit since they hold no stocks at all. This is a further indication of a widening rift between the haves and have nots which will cause widespread social problems by at least 2010. It might even make the 60's look like child's play.

The Annual Personal Savings Rate- Commerce Department. As regards the 1997 rate of 2.1%, not since the Great Depression have savings rates been so low.

1997	2.1%
1996	2.9
1995	3.4
1994	3..5
1993	4.4
1992	5.7
1991	5.6
1990	5.1
1989	5.0
1988	5.4

Even those numbers are deceiving since, with the rapid rise of the stock market, there has been a substantial increase for those Americans that have been able to partake. But for the 56%- they will have HUGE retirement problems.

ALZHEIMERS: A Wayne State University show that the bacterium Chlamydia pneumoniae was present in 17 of 19 late-onset Alzheimer's patients- but not in the unaffected areas. It might mean that new treatments and drugs for this insidious disease.

HEART DISEASE: Heart failure deaths among people 65 and older fell dramatically between 1988 and 1995, particularly among blacks.

HEALTH INSURANCE: Due to the rising health care costs, the Health Insurance Association of America is predicting that more than one out of every five non-elderly Americans will be uninsured by 2007

SOCIAL SECURITY: The Social Security wage base took a major jump to $72,600 in 1999.

REAL ESTATE AGENTS: Real Estate Agent demise: Professors at the University of North Texas who indicated last year that the Internet would foster a significant decline in the number of agents say that the trend is moving even faster as agents have difficulty in keeping up with technology. This same scenario will exist for financial planners, insurance agents and brokers.

ABUSED WOMEN: Certain "... studies have indicated that as many as 44% of women...have been abused at some point in their lives, yet most physicians do not routinely screen their patients for abuse."

POVERTY: Over a three-year period, 30% of Americans were BELOW THE POVERTY LINE for at least two months, though only 5% were stuck there for two whole years. More than 41million Americans now have no health insurance, a figure that has been rising by 1million  a year.

MEDIGAP SUPPLEMENTAL PLANS: The Consumer's Union noted that Medicare Supplemental plans have increased by an average of 35% since 1994. It also noted that premiums for Medicare Part B- which is mostly subsidized by the government- will more than double in the next eight years from $526 annually to $1,172 in 2006. Their major comment was simply that Medicare is too confusing and expensive for many older people. As an instructor in these areas, I certainly would agree as to the confusion. Add in graft and you have an even bigger problem.

With 58 the average age of death for Russian males, much of Viagra's prime potential market is eliminated

SLIM DIET: Strict dieting slows down the aging process by putting the reproductive process on hold, a finding that could eventually allow scientists to alter life spans. When they put fruit flys on strict diets, they almost "live forever". Yes, you should stay healthy and absolutely keep your weight down. But living to 95 without ever having a Whopper hardly seems worth it.

IRS AUDITS ARE GOING DOWN: Expected 1998- 1.09%, down from 1.27% in 1997 and 1.67% in 1995 and 1996.

STUPID, GREEDY, LAZY AND GULLIBLE: (WSJ) An Alaskan woman ran a very successful pyramid scheme where she bought unused frequent flyer miles and repackaged them into discount tickets and (supposedly) resold them. Made a bundle- for her. Those who were caught were a U.S. attorney (specialized in white collar crime) a judge, police chief, etc. One idiot got one check cashed (that's how they gain your confidence) and then subsequently dropped in $220,000 of his retirement fund. How'd he find out about it?? Referred by two "trusting" friends (who probably wouldn't know a good investment if it bit them). Some high level executives, who initially made a bundle, wrote praising testimonials when an investigation was first launched- and had it quashed. The state is suing many of them to get back their fraudulent gains of 50% or more. The woman says she is sorry she did this. No she isn't. She's sorry she got caught. Big Difference.

FUND TURNOVER: (WSJ) Hewitt Associates did a survey of 1.4 million 401(k) participants to see how they responded to the stock market drop. From 7/27 to 7/31, trading activity DOUBLED. Last October when part of the Asian mess hit, trading QUADRUPLED. Another analyst noted that in at least 80% of the time, market timing does not work. Why? Because you not only time your way out, but you have to time your way back in. If it was so "easy", how come Money magazine doesn't catch all the peaks and valleys. Last August they said "Sell Stocks". You would have missed some great returns in the interim. Rebalancing is fine. Wholesale changes of core funds is stupid- particularly while Greenspan is still running the store.

LIFE EXPECTANCY: In 1900, the life expectancy was 47 years of age. Only one person in 25 had then survived to age 60. Women lived shorter lives due to childbirth.

In the 1990s, the population growth rate for senior males is outstripping that of senior females, according to Census Bureau data. The male population over the age of 65 increased 11% between 1990 and 1996, while the female population increased 7.5%. During the same time period, the number of men in the age group over 85 rose 27 %, compared with 24 % for women. The ratio of women to men in the age group over 85 narrowed from 3.1:1.9 to 3.1:1.95. Women still dominate the population over 65, but the gap is beginning to narrow. In 1990, women accounted for 60 % of the population over 65; by 1996 that share had declined to 59 %, a notable change in a population of this size over this short period. The increasing number of men in the seniors' housing market could affect developers significantly, particularly in the amenities sought. An increased availability of health care for older Americans through the emergence of Medicare is cited as one factor in the increasing longevity of men, as is a decline in cigarette smoking among older males. (Housing the Elderly Report, April 1998)

PHYSED: In the 1960's, physical education was mandatory. In 1995, only one quarter of high schools required it. And during those 25 years, the preponderance of overweight children grew from 5% to 11%. Another 14% are almost overweight. By the time a child turns age 17, they would have sat through the equivalence of 3 years of watching television.

FEE OR COMMISSION: Consumers and fee planners tend to bemoan the people who sell a product because of the (supposed and, quite possible) conflict of interest. But from an article in Life Insurance Selling, came this, "An attorney is a product person. He sells his services, which amount to time and knowledge." Is there a conflict of interest if he does not have the requisite knowledge? Of course there is- and the scenario is no different when you work with a planner on commissions, fee based or solely fee only. There is ALWAYS a conflict of interest because something IS being sold. The issue is competency and knowledge. That is NOT expressed by a designation- CFP, ChFC or otherwise. You need to do a lot more research.

401(K): (Tim Younkin) "Employees in 401(k) plans are protected by the Employee Retirement Income Security Act (ERISA). This 1974 law requires employers, investment advisers, and plan administrators to put employees' interests first in managing retirement savings plans. Other qualified retirement plans such as 457's and most 403(b) plans are exempt from the duties mandated by ERISA. Insurers today hold 85% of the 457 and 403(b) market but only control 25% of the 401(k) market. One reason is that ERISA requires 401(k) sponsors to safeguard employees' interests when selecting outside firms to manage the plan's investments and those interests are rarely best served by variable annuities. One thing ERISA makes clear is that employers are fiduciaries. That means they must act responsibly to protect the workers enrolled in the savings plans. Unfortunately, very few employers do."