Moody's Review

February 2001

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

REVERSION: A reader asked why I didn't "support" the use of individual stocks since Buffet, Lynch, et al had done so "well". My reply:

"As regards Lynch, et al, you have to understand standard deviation. He had an exceptional return- but then he quit. At his peak, it would take another 70 years to know with a 95% degree of certainty if his return was due to luck or skill. If you want concentration- look at Janus. Huge returns- took a bath in 2000 due to tech tumble and the manager quit. Was he good or lucky? You can say good, but then you need to address the extra risk as well as the time frame. How about Buffet? Significant reversion to the mean most recently.

Such statistics are not like watching Michael Jordan where the performance is measured visually in milliseconds to as long as 5 or ten years. Investment returns and performance must be measured over a longer period of time and are far more difficult to quantify. It is exceedingly difficult to master stock picking, et al, and I have never stated the personal competency to perform such function.

Can you pick winners? Maybe. But look at my article on past performance and the 2000 Investor's Guide to Asset Allocation. In that same context, can funds beat the S&P? Yes, but then look to the repetition in subsequent years as well as fees, and turnover rates.

Can individuals beat the market consistently. No. The word being consistently.

Didn't Long Term Capital and two Nobel Laureates know all past teachings? Sure. And that loss cost an effective $6 billion bailout by the FED.

For those people who are CFA's, Bill Sharpe, etc.- they have no need for my teachings. But in terms of lesser beings (myself included), I defer to William Bernstein (and Bogel and Malkeil) who said "If you really want to become proficient at asset allocation you are going to have to log off the net, turn off your computer, and go to the bookstore or library and spend several dozen hours reading books." Individual stock picking is even more demanding."

While "hundred year storms" do occur, firms fail far more frequently because they have estimated the distribution of outcomes incorrectly, through model error or management myopia, or risk ignorance.

New England Economic Review, Federal Reserve Bank of boston  

DEPRESSION: 55.3% of all female suicides are committed in China.

GOING UP: A  recent report by MetLife Mature Market Institute indicates that the average cost of a nursing home stay in the U.S. is $153 a day, or nearly $56,000 a year.

ASIA and EUROPE ASSET ALLOCATION: With oil prices still high and evidence mounting that demand from United States consumers and companies is slackening, especially in the once-feverish electronics sector, economists now predict that Southeast Asia's economic growth rates will cool significantly in 2001. But supposedly Europe is geared for higher growth .

"When innovation lowers costs by enough so that the return exceeds the cost of the investment, then you undertake the investment regardless of the business cycle

John Lipsky

CIVILIZED?: (U.N.) Eighty million unwanted pregnancies and 20 million unsafe abortions. Millions of beatings and rapes. Infanticides and so-called "honor" killings. This is what the world's women still endure each year, despite major changes to their lot at the end of the 20th century

HERE'S LOOKING AT YOU KID: From age 20 to 60, the average eye's ability to distinguish contrast declines two and a half times. By 86, that ability has fallen by one-fifth.

It is obviously just a matter of time before the bulk or our workforce will require a much higher level of problem solving skills that is currently evident.

Alan Greenspan

LONG TERM CARE: "The LTC plan sponsorship rate for all U.S. employers with 10 or more employees [is] at 0.2 percent." Larger firms, which tend to be benefit innovators, have a slightly higher rate at 8.7%.

A BIG SCREWING: An acquaintaince that is in the insurance business and is close to 60 has a portfolio of bonds with 5 and 10 year maturities. He simply holds those. Once in awhile he may buy some securities but it is limited. A "friend" from ML called him and told him he could switch his account at no cost. Sounded pretty good. He didn't pay much or any attention to the forms- just took the brokers word. Finally, several months later, he looked at his quarterly statement. He was being charged over $1,100 quarterly because the broker had put him into a 2% wrap account. The broker never told him that and he admits that he should have checked. By the same token, he is absolutely livid the broker misled him about the fees and charges and is pursuing further action with the firm.

Do not trust anyone with your money. Always read every form. If it doesn't make sense, don't sign it until it does. And if they can't or won't put the corrections in writing, run away.  

DIE: 4 out of 5 people will die in a nursing home or hospital

Meetings are indispensable when you don't want to do anything.

John Kenneth Galbraith

BONES: Men account for 20% of the 10 million people with osteoporosis

DYING ( Worldwatch Institute) The AIDS epidemic in Africa is reducing life expectancy, raising mortality, lowering fertility, leaving more men alive than women and producing millions of orphans. Unless a medical miracle occurs, almost all the 24 million Africans infected with the virus at the beginning of 2000 will die. Each day 6,000 Africans die from AIDS, and an additional 11,000 are infected.

SURGERY: At the American College of Surgeons meeting, researchers from New York Methodist Hospital found that surgery should not be denied to patients 100 years or older simply due to chronological age. The researchers examined 61 surgeries with general anesthesia among people over 100 conducted recently. Over half the patients went to a nursing facility following surgery, 30 percent went to their families, and 15 percent died. Although 90 was generally the oldest age for surgery during the 1970s, 1985 brought the first report of a surgical procedure done on someone over 100. The US population is expected to grow by 53 percent between 1990 and 2015, with a fivefold increase in the number of those over 85. For that period, the number of centenarians is projected to grow by a factor of 32.

My father had surgery for lung cancer at 80. Though he died of a subsequent infection, I always thought the doctors were pushing the limit. Apparently not.

I DIDN'T THINK IT WAS THIS BAD: Pollution still prevents Americans from swimming or fishing in 40% of the nation's waterways.

"An incompetent attorney can delay a trial for months or years. A competent attorney can delay one even longer."

Evelle J. Younger

DOW JONES GLOBAL TITANS INDEX: Cap-weighted index composed of 50 stocks of the world's largest multinational companies. Each Global Titan company has a market cap of at least $20 billion. Companies listed in this index include Toyota, Walt Disney, and AXA.

USE IT OR LOSE IT. How many times have I got to say this- The brain is like a muscle (AP): "Fogged memory and slowed wit are not inevitable consequences of getting old, and there are steps people can take to protect their brains. Mental exercise seems crucial. Benefits start when parents read to tots and depend heavily on education, but scientists say it's never too late to start jogging the gray matter. People have to get physical, too. Bad memory is linked to heart disease, diabetes and a high-fat diet, all risks people can counter by living healthier lives. In fact, provocative new research suggests these brain-protective steps, mental and physical, may be strong enough even to help influence who gets Alzheimer's disease."

DEPRESSION:

Being Condemned to Life

William Styron

MORNINGSTAR: (Mark Warshawsky) During 1998 and 99, only about 33% of the five or four star funds stayed in those upper ranks. At some point, the rest fell to 3 star or below.

PERCENT OF BABY BOOMERS WHO:

Plan to work at least part-time during their retirement years 80%

Are very, or fairly, optimistic about their retirement years 69%

Have given a lot, or some, thought to their retirement years 72%

Expect to move to a new geographic area when retired 21%

Expect they will have to scale back on lifestyle when retired 35%

Expect to devote more time in retirement to community service and volunteer activities 49%

Do not want to depend on children during retirement 70%

Think you should be able to depend on family financially for retirement 9%

Think they can count on self-directed sources of income such as IRAs and 401(k)s 68%

Think they can count on Social Security for retirement income 48%

Believe their generation will live longer than their parents' generation 67%

Believe their generation will be healthier than their parents' generation 56%

Source: AARP study, Baby Boomers Envision Their Retirement, February 1999, American Demographics, Sept 2000

HEALTH INSURANCE PREMIUMS. (Washington Post) Rates are expected to go up 8.5% this year and are projected to increase substantially  in further years. It is causing major havoc with retiree budgets that never figured on such increases.

SO YOU THINK WE HAVE THE HUGE BUDGET SURPLUS?? However the National Academy of Social Insurance say that billions of dollars are needed to keep Medicare solvent when there are over 78 million elderly who will be in the program by 2030.

25% of Americans under age 65 are without health insurance. Prescription costs are over the wall. Nursing home costs are around $56,000 annually. Coke and Pepsi compete to open up machines in school districts and subsidize the strapped budgets. And on and on.

Additionally, Clinton- like so many predecessors- notes how the economy will go on and on at this rate and therefore the deficit can be paid off by something like 2012. Never, never, never will happen.

NUTRITION AND HYDRATION CARE: A Fact Pac for Nursing Home Administrators and Managers." The Health Care Financing Administration will be sending all 17,000   Medicare- and Medicaid-certified nursing homes educational materials to teach front-line workers how to prevent unintended weight loss and dehydration. The title of the packet is "Nutrition and Hydration Care: A significant percentage of nursing home residents suffer from dehydration and malnutrition.

WOMEN: (National Foundation for Women Business Owners): There were nearly 8 million women-owned enterprises as of 1996 (36% of all U.S. firms); these firms employ 18.5 million people (one out of every four company workers); women-owned firms generate close to $2.3 trillion in sales (up 236% from 1987 to 1996); women-owned businesses represent from 1/4 to 1/3 of businesses internationally.

(55%) of women business owners currently invest in stocks or mutual funds compared to 67% of men business owners. The total value of the investments held by women business owners is lower than the total value of the investments of men business owners. Although 40% of both women and men business owners have less than $50,000 invested in stocks or mutual funds, 36% of men business owners have $100,000 or more invested, compared to only 17% of women business owners.

IS YOUR REAL ESTATE BROKER REALLY WORKING FOR YOU? A multi university study (Penn State, University of Texas and Florida Atlantic) of 21,235 houses between 1993 and 1995 showed that brokers get 3.1% MORE when they sell their own property. And it doesn't take any longer to do it either. The study said that ,"on average, broker's houses were listed 3% HIGHER than the rest of comparable properties".

It is also the reason that a buyer's broker may be viable for purchasers. Previous studies have shown that they can save up to 5% over "standard" purchases. 

Think about this- 3% on a $100,000 is $3,000 that you may never see. Worth doing your homework?????

I bought some batteries, but they weren't included

Steven Wright

BETTER CODES: According to Wharton professor Howard Kunreuther, approximately 25% of the $15 billion worth of insured damage in Florida alone (due to hurricanes) could have been averted had structures met existing building codes.

 MORAL HAZARD: Definition- moral hazard describes any situation, though usually a financial one, in which risky behavior is encouraged because risk takers believe they will be bailed out of mistakes by a third party. The NY Times noted that investors who went into Russia, Indonesia and South Korea "badly misjudged the situation in all those countries, lost money when economic meltdowns occurred, then stampeded for the exits. That put all the countries in a squeeze. After all, it's hard to keep food stocked in stores and an economy moving ahead when nobody will lend you more money. So the International Monetary Fund and the United States Treasury Department both advocated lending fresh funds to these nations to get them over the hump and back onto the happy track of prosperity."

We also had the real estate debacle of the 80's and one which I think is clearly indicative of transactions at home- Long Term Capital.

A more extended note was "Home ownership in areas like Malibu and Laguna Hills, Ca. "People who might otherwise avoid building homes in such areas because of the risk of fire and mudslides or in hurricane-ravaged parts of the East Coast might do so anyway because their home insurer picks up the tab if their house is destroyed."

Some say simply avoid all moral hazards- but that is not being realistic. However an economist noted, ".....it is often the case in financial crises that those who triggered the crisis don't pay at all; average citizens do."

IS PROBATE BENEFICIAL?? Well, its not always bad but I think this commentary from Nolo Press might help to put it in focus- "There are two big problems with probate: It usually ties up property for a year or more. It's expensive. Attorney and court fees commonly eat up 5% of an estate's value."

"This wouldn't be so bad if probate served a useful purpose, but usually it does not. People who defend the probate system--mostly lawyers--assert that probate prevents fraud in transferring a deceased person's property and that it protects inheritors by promptly resolving creditors' claims. But in truth, most property is transferred within a close circle of family and friends, and few estates face large creditors' claims."

"The actual probate functions are essentially clerical. "

As for those articles/attorneys who say the cost is not necessarily prohibitive since you can negotiate the rates- rubbish!!! If a loved one has just died, someone is going to tell me that the survivor is going to go out and interview several attorneys to see which one might give the best rate??? Get real. The anguish and sorrow of death usually means that an attorney might have been selected via some referral that is obviously not checked out. A fine example is when my brother in law died unexpectedly 10 years ago in Massachusetts. My sister was given a referral by the funeral director- who apparently didn't have a clue as to what was needed. Anyway, when I got back to Mass. a couple weeks later, it was obvious he wasn't that good at all- yet perceived by the local crowd as one of the best attorneys. I don't fault my sister save for the fact they didn't even have a will. At least if they had done some planning, the scenario would not have been so bad.

PAIN: Four out of ten dying patients are in severe pain most of the time according to a recent survey. Another study indicated that family members judged pain to have been moderate to severe during the last three days of life And more- (Journal of the American Medical Association) A survey of cancer patients at nursing home indicated a significant undertreatment for pain, particularly for older patients.

Age	No treatment for pain	Non opioid analgesics (Tylenol)	Weak opioid (Tylenol with codeine)	Strong opioid (Morphine
65- 74	21%	13	27	38
75- 84	26	16	33	25
Over 85	30	21	36	13

TRAFFIC DEATHS: 37% of the 6319 traffic fatalities of 15- 20 year olds in 1996 were alcohol related. Auto crashes are the leading cause of death for teenagers. 21% of fatally injured drivers between 15- 21 had alcohol in their systems.

ELDER ABUSE. In 1996, 225,000 reports of elder abuse were filed in California. But it is estimated that they represent only 1/14th of actual cases.

AND I'LL HUFF AND I'LL PUFF........ (Business Week) Virginia Tech researchers may have found a way to make wood out of plants by adding a "glue" that holds it altogether. While it would decimate part/much of the logging business, can you imagine what a business it could start worldwide where literally anyone might have a good home for little money and with little resources??? Very interesting

WANNA BUY A FIVE STAR FUND??? (NY Times) According to a study by by Christopher R. Blake, associate professor of finance at Fordham University's Graduate School of Business, and Matthew Morey, assistant professor of economics at Fordham, Morningstar's five-star funds, as a group, do not beat the market, even if they clearly do better than the average one-star fund. For example, the average fund with a five-star rating on Jan. 1, 1993, underperformed the market by 3.8 percentage points for the five years through Dec. 31, 1997.

And while a one star fund is not good, they found that the differences between the performances of the average five- , four- , and three-star funds are so small as to have very little statistical significance.

The Value Line Mutual Fund Survey also bases its ranking on historical risk-adjusted performance, though it looks at performance over different periods than Morningstar does and defines risk differently. Yet, on average, its group of highest-ranked equity funds have performed more than one percentage point a year worse than Morningstar's.

One system that has worked system calls for the purchase each Jan. 1 of the best-performing diversified no-load equity fund of the previous year. According to Sheldon Jacobs, editor of the No-Load Fund Investor in Irvington, N.Y., such an approach would have produced a 20.2 percent return, annualized, since the beginning of 1975, beating the Wilshire 5000 by an average of 3.2 percentage points a year".

I have followed that strategy for years and there are articles that I have written about its capabilities. But a couple things require note. First, it is lacking in almost any tax efficiency. Secondly, it is almost only valid for up markets since it is the momentum that keeps it going. Third, it is literally impossible to do in a tax deferred account since the funds allowed are usually extremely limited and would not include the funds to use. Further commentary on how "easy" it is to use comes from a former professor, Mark Carhart, who has studied fund performance year to year back to 1962. "If fund performance were all a matter of luck, one would expect that just 10 percent of all funds in the top performing decile one year would repeat that performance the next year. But Carhart has found that a greater percentage of those top performers manage to do so. Here's the catch: He has also found that the top decile performers in any one year are more likely to end up the next year in the bottom 10 percent."  And in using the Jacobs strategy, the portfolio was 31% MORE volatile than the broad based market.

The article states what I have said for years,

"The problem with the popular rating systems is that they do a poor job of distinguishing between adviser skill and mere luck.", and

"Unless they're willing to just go with the roll of the dice, investors should judge a fund's performance only by comparing it to others that focus on the same kinds of securities and pursue a similar investing style."

If you or your adviser is not reading stuff form the Federal Reserve Boards, the ability to use a rating service is suspect at best. Actually, your ability to do investments is suspect.

TAX: Slightly more than 1.5 million taxpayers had income of more than $200,000 in 1996. That group is only 1.3 percent of all taxpayers, but together they earned $806.6 billion, 17.8 percent of all individual income reported to the IRS, and paid $228.1 million in federal income tax, or 34.7 percent of individual income taxes that year.

LIFE SETTLEMENTS: If you buy into a life settlement, the funding company could make excess money by simply lowering the actuarial age. So to make sure that the buyer is protected, a  "stop loss" separate insurance policy should be purchased. If the insured lives longer than anticipated, the insurance pays off. That is a way of guaranteeing your lowest return. Don't know anymore about it at this point but it does indicate how difficult viatical and life settlements can be.

OLD: The number of Americans over 65 is 4.1% of the current population. By 2050, it will be 20.4%.

FIDUCIARY DUTY: In June, 1998, the U.S. Court of Appeals for the Ninth Circuit held that the sponsor of an early retirement plan had breached Employee Retirement Income Security Act of 1974 (ERISA) fiduciary duties by failing to warn retiring employees of the serious tax consequences of lump-sum distributions. In Farr v. US West Communications, the U.S. Court of Appeals for the Ninth Circuit found that US West had breached its ERISA fiduciary duties by failing to warn early retirees of the tax consequences of lump-sum distributions. However, because ERISA allows plaintiffs no recourse to sue for damages, the court found there were no remedies available to the plaintiffs.

And I bet for literally all the major companies, there is NO identification of how to take out employer stock that may have been offered as part of a 401(k) or in another pension plan. If you are working for Ford, IBM, HP or anything of the like, you had better be aware of the various change in basis allowed for employer stock.

NICELY PUT COMMENTS ON INFLATIONARY CONTROL BY THE DALLAS FEDERAL RESERVE BOARD PRESIDENT: "I think the best analogy is a race car driver. Race cars have brakes. Now why would a race car have brakes? Obviously, it is not to slow down the average speed, it is to help you take the curves and the corners so your average speed can be higher. My colleagues at the Fed and I want the expansion to remain sustainable, we don't want to blow the lid off and slip into recession."

MOTHERS: (AP) Ranking the status and well-being of mothers in 106 countries, Save the Children organization cited a clear link between the health, iteracy and economic opportunity of mothers and the fate of the world's coming generation of children.

The 10 top-rated countries in which the studies show mothers fare the best are, in order, Norway, Canada, Australia, Switzerland, the United States, Netherlands, Britain, Finland, France and Cyprus.

The 10 countries at the bottom of the 106 are, in descending order, Niger, Mali, Guinea, Burundi, Ethiopia, Chad, Burkina Faso, Nepal, Gambia and Angola.

In the top 10 countries, female literacy ranges over 90 percent and the lifetime risk of a woman dying in childbirth is less than one in 3,000. Infant mortality ranges from four to eight for every 1,000 live births and access is virtually universal to safe drinking water and education.

The situation is reversed in the bottom 10, all in sub-Saharan Africa except Nepal.

Examples from the report: In Niger one woman in nine will die in pregnancy or childbirth; in Norway the risk is one in every 7,300. Just 6 percent of women in the bottom 10 countries use modern birth control. One of every eight children born in the bottom 10 countries will not live to reach his or her first birthday. Although the United States ranks high overall, the report said one child in five lives in poverty in this country, and the rate of infant mortality is high among certain American Indian groups, blacks and Hispanics.

"If you shoot a mime, must you use a silencer?"

P. J. O'Rourke

SMALL BUSINESS COSTS: (National Federation of Independent Business (NFIB) the cost of insuring health care for small businesses is expected to jump 15% to 20%, and that's on top of a 10% to 12% increase over the last three years.

"Advertising is a valuable economic factor because it is the cheapest way of selling goods..... especially if the goods are worthless."

Sinclair Lewis

HUNTINGTON'S DISEASE (Web of Care) Huntington's disease is an inherited, progressive disease of the brain and central nervous system. It causes the cells in the basal ganglia (the central part of the brain) to die. Many of the brain's messages pass through the basal ganglia. When the cells die the messages are not passed along properly. Brain cell death eventually affects every aspect of the person's life.

ELDERLY WEIGHT: (Journal of Clinical Epidemiology.) Among elderly individuals, especially frail persons, even modest weight loss should never be neglected because it is predictive of functional and health deterioration and even early mortality."  When the frail elderly lose 11 or more pounds (5 kilograms), their chances for institutionalization go up significantly.

INDEX ANNUITIES: Here is why insurance is so hard to understand and why it gets a (in this case) deservedly bad name. I was given an index annuity to review for a non investor. (An index annuity is NOT for investors but is possible a good tool for a non investor to get part of the market while keeping (supposed) losses to a minimum. I am referring specifically to something like 73/74.). The company is A+ rated and been around for years. "Good" company. But the product is less than a year old and the marketing brochure does not/cannot show any real return since it is "not a security". (Insurance rules apply here- that's why an agent does not need a securities license to sell these. Big Joke) The fine print showed a supposed hypothetical and the ability to use fixed return or index annuity per a once a year open window. Anyway, I simply used the calculator to figure out what the return would be on the index side. 3.8% over 3 years!. Terrible. But irrespective of the return is the fact that (effectively) no agent is ever going to figure out the returns- they don't know how- they just sell.

Anyway, I couldn't believe the returns would be THAT low so I called their marketing department (3 times) to get a hypothetical based on the past 10 years. They give you three alternative strategies for the returns but you have no idea if they are any good unless you use the calculator. Suffice to say, the last 10 to 15 years have provided some of the best returns the market has ever seen. But using their best alternative, the "investor" would have gotten a average of only 6.65% over the past 10 years. Why bother- just use a fixed and forget about the issue. Or find another product and do THOSE numbers.

The referral agent thought the ability to be able to transfer from fixed to index was the selling point. He was more than miffed that I had done the numbers and said to him, essentially, "this sucks." (I was more tactful- but you really can't dance around the problem. The client gets a raw deal and the ultimate fiduciary responsibility is to the client.)

There are viable index annuities but all are tough to understand. And if you don't have a calculator (as most agents do NOT), you are a fool to buy anything from them- certainly where PV and FV are required.

INVESTOR LITERACY: (Actually Investor ILLITERACY) Vanguard and MONEY magazine finished their third "Investor Literacy Test" of 1,500 randomly selected mutual fund investors, and the results indicate that, unlike the magazines touting increased investor knowledge, the scores went DOWN! "In the 2000 test, investors achieved a mean score of only 37%, a considerable decline from the 48.5% and 51% scores achieved in 1995 and 1997. About 51% of the 2000 Investor Literacy Test respondents rated themselves as "inexperienced" investors, achieving a mean score of 32% as a group. Some 40% of the respondents noted that they have invested in mutual funds for three years or less; this group also achieved a mean score of 32%."

The mean score for the MONEY/Vanguard Literacy Test was 37%, compared to a 51% score in 1997 and a 48.5% score in 1995. Other pertinent findings from the 2000 test:

College graduates scored higher (42%) than non-college graduates (33%).

Males scored higher (40%) than females (33%).

The 55-64 age group recorded the highest score (40%) and the under-35 group recorded the lowest score (33%).

Investors buying shares directly from a fund company earned the highest marks (mean score of 45%), followed by brokers (43%), investors who own funds through an employer (37%), financial planners (37%), insurance companies (36%), and banks (35%).

Investors with a higher level of self-rated expertise fared better: experienced (mean score of 53%), average (41%), and inexperienced (32%).

Investors with more experience investing in funds scored higher: 11 or more years (mean score of 44%), 4-10 years (37%), and 3 years or less (32%).

Scores varied with the level of online investing experience, as follows: Investors with online trading experience (mean score of 47%); investors who have visited, used, or registered at an investment company website (39%); investors who possess Internet access but have not visited an investment company website (33%); and no Internet access (33%).

Personally, I think it is reflective of the difficulty of doing planning properly since, no matter how astute, you are deluged by material that is mostly propaganda in one part, useless in another, or applicable to  special circumstances that have little to do with the average investors. Want one example? Stock- almost any stock. Why? Because unless you know diversification, you have no business buying individual issues. Even if you did buy, can you read the footnotes?  I suppose I could learn with enough time, but I'd like to have a life.

I COULDN'T HAVE SAID IT BETTER: From a planning company, "Planners, when helping their clients choose an appropriate asset allocation mix, usually like to talk a little about the risk/reward pyramid, utter some caveats, and then get onto the business of portfolio building. There's a slew of software out there to help them do just that -- create an efficient frontier for clients who want enough income to last through their expected age of mortality.

Just about every portfolio optimizer program on the market will construct an "efficient" portfolio. But the future value of this carefully constructed plan might be very different from projections, even if the average return for the entire target period is precisely what was estimated. A portfolio return that seems to provide plenty of money to age 95 might suddenly seem, when placed in another computer application that measures different risk, like an oil well that's going to run dry a lot more quickly than you think."

In fact, there is an Internet firm that offers planners- for a fee of $39.95 a month- the ability to determine allocation via their programs. "Investment Objectives Questionnaire - There is now an optional Investment Objectives Questionnaire built into the site that the user can go through to help you assess their risk tolerance. The results from the questionnaire will automatically feed to the suggested asset allocation on that screen."

As most readers know, I do NOT use software to construct allocation. I do all the numbers myself- including retirement projections- and provide individual reports for each person since everyone is uniquely different in investment/retirement scenarios. Further- it is an understanding of economics that leads the allocation, not some preprogrammed software by a 23 year old hacker that can't spell Greenspan. For example, in 94/95, universally all the allocations in magazines suggested the extensive use foreign funds cause that was certainly where the improvement would be. I used a little in emerging funds (less than 5%) and they were terrible. Got out. The bulk of the equities went into U.S. stocks since the economics were solid no matter what a journalist pundit would say. Doesn't mean I was going to be right- but reading and research determines what you do. The results for the next 6 years proves the effort was valid.

As regards the different allocations addressed above- every report I have ever done for a client contains the risk scenario of 1973/74. No matter what projections are offered, if you run into this you may run out of money. It does NOT mean you shouldn't invest even during retirement. It DOES mean that almost all bear markets have economic criteria with the leading, coincident and lagging indicators that only a blind man could miss. Hence the portfolio MUST be y restructured to accommodate such economic circumstances. It is NOT market timing- just being vigilant. No matter what anyone or article says, you could not handle a loss of 45%+ in just two years without destroying your emotional stability.

The absurdity of staying in the market no matter what was "reinforced" by author David Swenson in a 2000 edition of Investment Adviser, stating "that investors should "stay the course" by maintaining equities regardless of current economics because the market has always come back.." I repeat- could you stomach a 45% loss and sleep well at night? Could you stomach this loss at age 65 and feel comfortable that you had enough money for retirement?

I have no doubt whatever that most people live whether physically, intellectually, or morally, in a very restricted circle of their potential being. They make use of a very small portion of their possible consciousness...Much like the man who, out of his whole body organism, should get into a habit of using and moving only his little finger...We all have reservoirs of life to draw upon, of which we do not dream!

William James

FUND HOLD: (Bogle Financial Markets Research) The average hold for a fund is just over two years- but that is DOWN from about 3 years in the late 1990's and more than 12 years in the 50's and 60's (though I think the validity in that statistic is without merit).

Anyway, that's the reason variable annuities work since they are not impacted by taxes from the continual turnover of the funds. But the people using them are NOT investors. They are normally market timers- and dumb ones at that. However there is a real reason for using them if you have a LOT of money. Anybody want to take a guess? (Bond funds)

MUTUAL FUND INVESTORS (Investment Company Institute) The number of mutual fund investors has risen dramatically since December 1995. Some 48.4 million U.S. households owned funds as of June 1999 -- an extraordinary 61% increase over the 30 million fund-owning households in 1995

ALWAYS AT SUPPER TIME: More than 3.3 million people have registered with the Telephone Preference Service of the Direct Marketing Association to be removed from calling lists used by telemarketers. That is almost as many as the 3.8 million people who have registered with the Mail Preference Service administered by the association to have their names and addresses removed from mailing lists.

To be taken off the lists used by telemarketers, send your name, home address and telephone number to: Direct Marketing Association, Telephone Preference Service, P.O. Box 9014, Farmingdale, N.Y. 11735-9014

BAD AND GOOD:  (National Institute of Child Health and Human Development.) The percentage of 12th graders who reported smoking daily increased by a percentage point, to 23% from 98 to 99. Alcohol use was also essentially unchanged, with 31% of 12th graders reporting frequent drinking during 1999, and 32% in 1998. On the plus side, the rate of teenagers giving birth continues to drop, and death rates among children ages 1 to 19 'are the lowest they have ever been."

EXERCISE AND CANCER: If you are unfit, you have a 80% greater risk of dying of cancer. Men who were unfit AND obese were 2.5 times more likely to die from cancer. But it is possible to be fit AND overweight but NOT increase your chance of cancer.

ASSISTED LIVING: On average, assisted living facilities have about a 90% occupancy. New units take about 15 to 18 months to fill. They are not cheap costing from $2,500 to $3,000 monthly. Over 1,000,000 are living in over 20,000 senior residential communities. The majority are frail with the average age of 83.

AARP said that of those that need care, 82%  would like to stay in their own home (duh!); 9% would prefer to move into a facility and 4% into a relatives

INTERESTING: Nielsen NetRatings- almost 51 percent of U.S. Internet users in May were women, while only 49.2 percent were men.

SOCIAL SECURITY: Are you a divorced woman wondering about SS where you don't have enough credits. If you were married for 10 years (and are currently not married) you can receive credits under his social security. If your ex was eligible for SS but is not able to yet draw benefits, you can still collect if you have been divorced for at least two years. There's more. But it gives you an idea what is possible