MOODY'S REVIEW

NOVEMBER 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

IRRATIONAL EXUBERANCE: MSNBC had a two hour special on the Silicon Valley and investors who lost money in tech stock. The intro asked how could people make such a mistake- also mentioning greed, etc. Well, part of the problem is NBC, CBS, et al who bid up all the euphoria when the market was going up and let consumers into the same mistakes. Never once while the market went nuts did they caution anyone. I remember they did a "nice" article on a woman who was making big money doing day trading. Did they go through the risks? Nope. And now they want to "explain" what went wrong.

I know that it is television and marketing and that's how things work. But a great number of these supposed investors didn't have a clue to investing and did absolutely no homework. Much of it all boils down to emotionalism. But that is clearly wrong. There is no such thing as emotionalism in investing. It's just dull, extensive reading and research- nothing more. I do not "like" any investment I use. What I would really like would be a 15% municipal bond, 30 year maturity, AAA, no calls. But it doesn't exist so everything else is a trade off. Admittedly it's not fun and exciting. But that's how it is done. As such, you never would have lost much money in tech last year. Now, I am not saying you wouldn't have lost some (my accounts did)- just simply that a pure exposure to tech stocks was so far beyond a rational person that it was absurd. As regards 2001, I told my clients to opt OUT of equities BEFORE 9/11. No I did not miss the losses prior to that time. I had really expected the FED's seven interest rate reductions (to that point) to have had some positive impact. But once it was clear it was going to get worse for the fourth quarter and beyond, my focus was to the problems of 1973/74. That was a real investing nightmare and I suggested a more conservative approach. Considering all the layoffs, I think it will be prudent position for some time to come.

BEFORE I WAS SO RUDELY INTERRUPTED: The average person gets 1 interruption every 8 minutes, or approximately 7 an hour, or 50-60 per day. The average interruption takes 5 minutes, totaling about 4 hours or 50% of the average workday. 80% of those interruptions are typically rated as "little value" or "no value" creating approximately 3 hours of wasted time per day.

DYING: Russia's death rate last year reached 15.3 per 1,000 people, the highest in Europe and the highest in Russia since the end of World War II

HEALTH COVERAGE: only 37% of companies nationally offer health coverage to early retirees and 26% to those over age 65

A CLIENT ASKED ME ABOUT MARKET VOLATILITY (BEFORE 9/11) . My reply, "The reason why the market is overly "volatile" during this period is simply (at least primarily) because it also went up for no reason in many, many cases. Tech stocks are not inherently bad, but many were valued not only without any income, but with the probability they would NEVER have any income. Unfortunately, nobody really said it should be a concern unless you read the comments from some true analysts. So when it came down, it hit like a brick and many investors (actually people who didn't have a clue) think that everything is bad.

This is also coupled with commentary for years that the economy no longer had to have business cycles of ups and downs but could merrily continue on an upward trend forever. There were tons of these articles in the WSJ, Forbes, etc. Now, irrespective of a good FED, they are finding that cycles will continue. I think many are reacting negatively to what was an absolute certainty.

DIVERSIFICATION: (WSJ) Ronald Surz and Mitchell Price calculated returns for portfolios of 15 randomly selected stocks over the 13½ years through June 1999.

The authors found that among such randomly selected 15-stock baskets, the typical portfolio strayed as much as 8.1 percentage points a year from the market's return. Thus, if the market was up 11% in a given year, the typical portfolio might gain as much as 19.1% -- or as little as 2.9%.

What if you are careful to pick a group of 15 well-diversified stocks? The typical tracking error was 5.4 percentage points. Some 15-stock portfolios strayed far more than this amount, while others would track the market more closely. Even if you held 60 stocks and even if you were careful to diversify, the typical tracking error was still 3.5 percentage points a year.

At the level of 300 or 400 stocks, you're probably down to one or two percentage points of tracking error.

The only way to eliminate this tracking error is to own the entire market, preferably through a low-cost index fund that mimics the Wilshire 5000 or the Russell 3000.

A lot of this has been identified in my commentary on diversification since last year. If you buy stocks, you need to know diversification by the numbers. If not, you are NOT an investor.

MONEY: Household wealth decreased $2.3 trillion or 8% between the end of 1999 and the end of 2000.

A lie may take care of the present, but it has no future

BAD MANAGEMENT OF SOCIAL SECURITY ADMINISTRATION (NY Times) The Social Security Administration is increasingly unable to serve the American people as it should, warns the Social Security Advisory Board, a bipartisan panel of seven experts. The panel lays part of the blame on inadequate staffing at a time when millions of baby boomers are nearing retirement. In two reports to be issued early this year, the panel says the agency is swamped with a backlog of claims and litigation, that beneficiaries must wait two to four hours for assistance at many offices and that accurate information often cannot be obtained by telephone. Eligibility decisions are not made in a uniform or consistent manner and two-thirds of the people challenge the denial of disability benefits prevail on appeal.

DEDUCTIONS: An IRS publication shows more than 5.8 million individual income-tax returns reported medical and dental expense deductions for 1999. That was up 6.3% from the prior year, according to "Statistics of Income Bulletin," a quarterly publication. The dollar amount of deductions surged 10% to nearly $35 billion.

TAX FRAUD: a U.S. taxpayer and a foreign subsidiary -- typically a shell company -- both would buy shares in a profitable foreign company, say a bank. The foreign shell then sells its shares back to the bank, but the parent treats that transaction as a dividend rather than a sale.

For accounting purposes, it also transfers the cost of the foreign shell's bank shares to its own shares, essentially doubling their paper cost. That inflated cost allows the parent to claim a big loss when it sells its own shares in the bank.

But what do I know- I think the decision that the IRS won that this was a sham transaction was overturned upon appeal.

LTC AND MEDICAID: a recent BDO Seidman study noted that the gap between nursing homecosts and Medicaid reimbursement in Washington is $11.61 per patient per day. the only way nursing homes can now stay in business . . . is to charge private pay patients $20 to $30 a day more than what Medicaid pays.

INSURANCE QUIZ: This simple one question quiz will quickly determine if you or your salesperson understands the basics of life insurance.

You own a standard term, whole, universal or variable life insurance policy that is to be paid out to your son when you die. The proceeds are $1,000,000 total and represent the ONLY thing you own. You die. How much will your son get? Answer- $874,750. Why? Because this year you can only leave $675,000 to a beneficiary. Hence there will be an estate tax leaving only $874,750 net.

But a CFP said that "the insurance company pays the full $1 million to the named beneficiary. The estate of the father owes the estate tax. It's an interesting question as to whether the IRS can collect the estate tax from the son even if the son is the father's sole beneficiary due to state laws.

Your quiz answer gets the numbers right but misses the answer on the actual cash flows and legalities involved."

My reply: "Sure I have heard this before. But attempting to say that the estate is bankrupt and therefore no tax is due is unacceptable to proper planning. One can do the same thing with annuities or ANY asset transferred by title leaving $0 in the estate.

Based on your contention, you could take it to its "logical extreme" where one could transfer billions this way with no tax as long as it is a contractual transfer. I think not."In other words, the guy was an idiot.

LONG-TERM BUDGET ISSUES: MOVING FROM BALANCING THE BUDGET TO BALANCING FISCAL RISK: Testimony before the Committee on the Budget, U.S. Senate, Statement of David M. Walker, Comptroller General of the United States, 2/2001, GAO-01-385T,) "Our [GAO's] long-term simulations . . . show that spending for federal health and retirement programs eventually overwhelms even today's projected surpluses. This is true even assuming no additional spending for defense, education, or a Medicare prescription benefit-- i.e., even if the entire unified surplus was saved." (p. 3)

"Although the ten-year horizon looks better in CBO's [Congressional Budget Office's] January 31st projections than it did in July 2000, the long-term fiscal out look looks worse. In the longer term--beyond the 10- year budget window of CBO's projections--the share of the population over 65 will begin to climb and the federal budget will increasingly be driven by demographic trends.

"As more and more of the baby boom generation enters retirement, spending for Social Security, Medicare, and Medicaid will demand correspondingly larger shares of federal revenues. Federal health and retirement spending will also surge due to improvements in longevity. People are likely to live longer than they did in the past, and spend more time in retirement. Finally, advances in medical technology are likely to keep pushing up the cost of providing health care." (pps. 5-6)

"The message from our long-term simulations, which incorporate CBO's 10-year estimates, remains the same as it was a year ago. Indeed, it is the same as when we first published long-term simulations in 1992. Even if all projected unified surpluses are saved and used for debt reduction, deficits reappear in 2042. If only the Social Security surpluses are saved, unified deficits emerge in 2019. . . . In both scenarios deficits would eventually grow to unsustainable levels absent policy changes.

"To move into a future with no changes in federal health and retirement programs is to envision a very different role for the federal government. Assuming, for example, that Congress and the President adhere to the often- stated goal of saving the Social Security surpluses our long-term model shows a world by 2030 in which Social Security, Medicare, and Medicaid increasingly absorb available revenues within the federal budget. Under this scenario, these programs would require more than three- quarters of total federal revenue.

"Little room would be left for other federal spending priorities such as national defense, education, and law enforcement. Absent changes in the structure of Social Security and Medicare, some time during the 2040s government would do nothing but mail checks to the elderly and their healthcare providers. Accordingly, substantive reform of Social Security and health programs remains critical to recapturing our future fiscal flexibility." (pps.8-10)

"As we have stated elsewhere, early action to change these programs would yield the highest fiscal dividends for the federal budget and would provide a longer period for prospective beneficiaries to make adjustments in the own planning. This message is not changed by the new surplus numbers. It remains true that the longer we wait to take action on the programs driving long-term deficits, the more painful and difficult the choices will become." (p. 20)

ALL TOO TRUE: (FSO) "The government is losing billions of dollars in unpaid taxes each year, but the IRS doesn't really know how much and can't figure out a way to find out without upsetting Congress and taxpayers. There hasn't been a reliable measure of the "tax compliance gap" since the 1980s. In 1998, the IRS ventured a guess when it estimated that $195 billion in individual and corporate income taxes went uncollected in fiscal 1997...an average of $1,625 for each of the 120 million income tax returns filed that year."

LTC: In 2020, one of six Americans will be 65 or older - 20 million more seniors than today. Individuals 85 and older, currently numbering 3.5 million, will double to 7 million by 2020 and double again to 14 million by 2040. The Census Bureau report states that persons aged 85 and older are more likely to need nursing home care than any other age group. While only 1 percent of persons aged 65 to 74 and 6 percent of persons aged 74 to 85 lived in a nursing home in 1990, 24 percent of persons aged 85 or more lived in a nursing home in 1990.

SECURITIES SUITABILITY (NY Times) Traditional brokerage firms have a clear burden to do so, but online brokerage firms generally have argued that they should not have the same obligations because they do not make recommendations. New guidelines should be coming soon since the NASD says a recommendation is a recommendation.

RACE AND MONEY: (NY Times) While the percentage of whites who own stocks has stayed flat at about 80%, the percentage of African-Americans had increased to 69% earlier this year compared with 57% in 1998. African-Americans are more conservative investors, and compared with whites, are more wary about volatile instruments such as stocks. Even after controlling for things such as income and education, African-Americans are still 35% less likely to invest than whites.

SOCIAL STATE? (NY Times) Several agencies estimate that tax expenditures now total $700 billion to $800 billion a year. When combined with traditional social programs, that makes true social spending in the United States about as large as it is anywhere compared with the size of the economy. Mr. Hacker figures that the combined social programs and tax expenditures, after taxes, come to 24.5 percent of gross domestic product each year in the United States. But in Sweden, which is widely criticized for running a welfare state, the equivalent social programs and tax expenditures are only slightly higher, at 27 percent of G.D.P. In Britain, they are 26 percent, and in the Netherlands 25 percent. The United States, however, has the highest proportion of tax expenditures

DRUGS: U. S. sales of prescription drugs were up 15% to $145 billion last year. The increase was driven mainly by sales of cholesterol fighters, which registered $9 billion in sales. Of the total increase in prescription sales last year in the US, 9% resulted from a higher number of prescriptions written, with only 4% due to price increases and 2% resulting from new medicines

U.S. spending on prescription medications likely will double in the next five years. Just over half of the increase will be because of increased spending on two categories of drugs: cardiovascular medicines, including those for controlling cholesterol levels and blood pressure; and central nervous system drugs, including drugs for depression, other psychiatric disorders, pain and arthritis.

Such increases in medication use and the expected future trend will be fueled not by senior citizens, but by Baby Boomers developing chronic health problems like heart disease and gastrointestinal disorders.

Considering the current Anthrax scare and the demand for various antibiotics, there may be a huge increase beyond that expected.

THE WEALTHY: The top 10 percent of earners, for example, receive 24 percent of employer-sponsored health insurance benefits. The deductions for pension accounts, including I.R.A.'s, are skewed even further toward the wealthy, with the top 20 percent of earners receiving two-thirds of the benefits.

CORRELATION: Ibbotson Associates reported that the correlation between REIT returns and common stocks declined significantly over a 30-year period from 1970 to 2000. According to Ibbotson, REIT correlation declined: 65% to .26 from .74 with small stocks, 61% to .25 from .64 between REITs and large stocks and 41% to .16 from .27 with long-term bonds.

BROKER COMPLAINTS: allegations that brokers pushed stocks and other investments that weren't suited to their clients' needs were up 58% in the first quarter 2001.

700 PEOPLE DIDN'T BOTHER TO DO ANY CHECKING. An unregistered Investment advisor set up off shore funds that had 700 investors in 49 states and more than 100 investors overseas. The SEC lodged a complaint that  charges Mr. Renert and Hawthorne with creating a fraudulent $22 million offering of interests in unregistered offshore mutual funds. The S.E.C. said that from at least June 1997 through June 2000 Mr. Renert and Hawthorne sold interests in 30 entities known as the Hawthorne Sterling Family of Funds.

700 people liked the brochure- probably met the partners and liked and trusted them. All wrong reasons to select someone to handle money.

NASD DELISTING (Tyler Shumway, a finance professor at the University of Michigan ) "Shares of battered companies tend to plummet still further when a stock is delisted, as liquidity dries up and trading costs climb. Indeed, the shares drop an average 55% when they begin trading after a delisting from the Nasdaq. One reason the drop is so big, he says, is that delistings often have coincided with bankruptcy filings by companies that never trade again."

SO YOU WANNA HAVE A KID? The average cost of rearing a child born last year is $165,630- or $233,530 with inflation.

Low income families will pay $121,230; middle income $165,630 and upper income at $241,770 over a 17 year period. In 1960, it was $25,230.

I have a cat.

PENSION PLAN FOOTNOTES (WSJ) In recent years, analysts and investors have focused increasing attention on the effects that pension plans have on companies' income statements. But because the information showing these effects is buried deep in the footnotes of companies' annual reports, this area of accounting is still widely ignored and little understood by the investing public. As a result, shareholders may be rewarding some companies with lofty stock valuations on the basis of profits that have nothing to do with continuing operations. Moreover, pension assets belong to pensioners, not stockholders, even though the earnings streams produced by these assets show up in companies' income statements.

PENSION EARNINGS: (NY Times) nearly a third of big U.S. companies are getting part of their earnings from the plans. Further, companies can use pension accounting to manage their earnings by changing assumptions to boost the amount of pension income that can be factored into operating income. So if the market pummels the pension  plans, the earnings that an "investor" thinks the company is truly earning may not exist.

Income from pension plans comprised an average of 12% of pretax operating income at the 158 companies in the Standard & Poor's 500-stock index that report pension income.

ANNUITIES AND INSURANCE: (Nationwide Financial Services of Columbus) Americans may think they understand their 401(k), stock and mutual fund investments fairly well, but when it comes to variable life insurance and annuities, there is a considerable lack of knowledge.

The 2001 Nationwide Financial High Income Survey polled 500 people under the age of 60 with annual incomes above $150,000. The pool of respondents was made up of doctors, lawyers, corporate executives, small business owners and high-tech executives.

About 71% of the respondents said they had considerable knowledge of their 401(k) investments, 58% understand their stocks, and 61% their mutual funds. (Actually that is arrogance and is wrong) However, only 18% reported substantial knowledge of variable life insurance and annuities. Thirty percent said they had considerable knowledge of bonds.

OBESITY AND DIABETES- the rate of both these maladies has increased 50% in the last 10 decades. Obesity- being 30 to 50 pounds overweight depending on height- rose from 12.% in 1991 to 19.8% in 2000. Diabetes increased from 4/9% to 7.3%. Between 1999 and 2000, obesity increased form 18.9% to 19.8%. and diabetes increased from 6.9% to 7.3%.

Two decades ago, Type 2 diabetes in children was only 3% to 5% but now its  25% to 30%. This type of diabetes causes heart attacks and strokes. About 95% of all diabetics have Type 2. 80% of diabetics are obese.

27.3% of all Americans do NOT engage in any physical activity and only 25% consume the proper amount of fruits and vegetables per day. Only 17.5% of Americans get the recommended 30 minutes of exercise. Health care costs for diabetes are now over $100 billion annually. Almost 10% of ALL national health care costs are directly related to obesity and physical inactivity.

WHAT A RIPOFF: (USA Today) "At issue is a practice in which drug companies report average wholesale prices for drugs that are higher than what they actually charge for the products. Because of the way Medicare reimburses, doctors are able to keep the difference. As a result, some drug companies promote products to doctors based on artificially high wholesale prices. That practice cost Medicare $887 million last year for just 24 drugs."

Currently, Medicare reimburses doctors 95% of a drug's average wholesale price. Yet a General Accounting Office report out today says that the respiratory drugs albuterol and ipratropium bromide were available at prices that averaged, respectively, 85% and 78% less than average wholesale.

Another example: Doctors can charge Medicare $18.02 for a dose of leucovorin, a cancer treatment that costs them $2.94.

GOOD RIDDANCE: Motley Fool is laying off more than half of its remaining employees. Yea, I am being too harsh. And I am not saying that all the stuff they offered did not have merit. But beyond anything else, you have to know diversification before you ever buy individual stocks (even  with your discretionary monies). I bet that literally none of the Motley Fool has a clue to what I am talking about nor that ANY of the people who bought stock via their chat lines, etc. ever had an understanding to any of the fundamentals of investing. But it was free, exciting while the market was gaining and monies were made. Lot of money lost as many dropped after the March 2000 debacle. They had 400 employees at their peak- it's now a little over 100.

FROM A READER: I have a strong desire to enter the financial planning field and your information/website has done much to not only educate, but to realize there are people out there that care.

My question, is, given most of the issues with the financial planning field today (ie, training, dealing with inexperience, etc), how is it possible for a  person desiring entry into this field to obtain (and maintain) a level of knowledge consistent with the high tenets this industry should require? Certainly, one would need to work at a firm (at least initially) to get a start...obtain experience.. and hopefully (although like you, I'm beginning to feel there is more and more incompetence out there) find a reputable person to learn from...I'm sure it's a widespread problem...How do you train competent planners? Certainly we need more people like you out there helping people.

My reply: Wish I had some illuminating thoughts about getting into the business- but I don't. If you work for almost any firm, they will want you to sell stuff. Not all is bad, mind you, but over 50% shouldn't be sold so that tells you something right there.

I used to teach financial planning at the University of California but gave up on that since the effort of providing the facts of investing, LTC, etc. were not successful. It was either selling stuff or getting fees for investment "advisory" work that was the reason for getting a designation, not the true knowledge. And the members of the industry promote limited expertise (CFP for example) and have been extremely successful with it so my input for integrity and knowledge is pretty much lost upon planners and, certainly, the public.

I wish I had some better news, but my focus on planning is not accepted by any firm or organization. You just have to develop the expertise as you go along. And that is not easy and it takes a long time.

VALUE LINE AND 10%+: (NY Times) the V.L.M.A.P., for Value Line's Median Appreciation Potential, it is the median percentage by which Value Line's analysts project that the 1,700 stocks they follow will grow over the next three to five years. Value Line's analysts focus on a horizon that is three to five years away.

The V.L.M.A.P. flashes an all- clear signal when it rises to historically high levels. That is exactly what it has done since the Sept. 11 terrorist attacks. In fact, the last time the Value Line measure was as high as it is now was in late January 1991. True to form, the stock market rose smartly over the subsequent four years. I am just not as optimistic

DISABILITY INSURANCE: The risk of a 40-year-old becoming disabled 90 days or longer prior to age 65 is 64%

1 in 8 people are disabled for at least 8 days.

The average disability period for a 40-year-old disabled at least 90 days is 5-1/2 years.

Disability is more often sickness-related, not accident related (It can include mental and nervous disorders, heart conditions or even back problems.)

Disability benefits are often paid to those currently working (with certain disabilities)

Disability Insurance guarantees that income will continue.

YOU ARE ALL GOING TO DIE: Fifty-nine percent of adult Americans do not have wills.

OIL: (USA Today) World oil prices plunged more than 12% to their lowest level for almost 18 months on growing confidence that the U.S.-led war on terrorism will leave Middle Eastern oilfields flowing. It's also due to a slow global economy.

Also- Refineries are producing more fuel than the USA needs but are reluctant to cut back for fear that it would be viewed as an untimely attempt to reduce supplies and drive up prices.

CHILDREN: About 15 million families in the U.S. have special needs children.

ARE YOU SURE THE ACCOUNTING NUMBERS ARE CORRECT?: (PricewaterhouseCoopers) Of course (?) You read all the financial statements when you analyze a company including all the footnotes. But there have been 464 cases of financial statements being restated during the past 3 years, says Financial Executives International (FEI). That's more than all restatements during the previous 7 years.

Last year, 53% of all securities lawsuits filed against companies contained some sort of accounting allegations. That's up from 45% in 1996. These aren't all frivolous lawsuits: Nearly half of companies sued on allegations of faulty accounting eventually restate their earnings

OLDER WOMEN ARE SMARTER THAN OLDER MEN: Very old women appear to have better mental abilities than their male counterparts, even after taking into consideration education and other factors that affect mental performance, also known as cognitive function, researchers report. "At age 85, women perform better than men on a number of cognitive tests despite their lower level of education," Dr. A. J. M. de Craen, of Leiden University Medical Center in the Netherlands.

A little inaccuracy sometimes saves tons of explanation.

Saki

LTC: More solid info on why you don' want to die in a Medicaid ward. Nursing homes are losing $9 for every Medicaid patient they take for every day. Nationally, Medicare is paying slightly more than $4 per hour. The care for 2/3rds of the 1.6 million Americans in nursing homes are paid for by Medicaid.  

FUND FEES: The average no-load large-company core fund with assets of more than $1 billion charges 0.88% a year to run, vs. 0.18% for the Vanguard 500 fund. To beat the S&P 500 by 1 percentage point, the average large-company fund has to beat the S&P 500 by 1.88 percentage points. That's tough

I used to work in a fire hydrant factory. You couldn't park anywhere near the place.

Steven Wright 

LIFETIME: Blacks have a lifetime of 69 years while whites have 75 years. Heart disease and cancer are the major differences. Homicide is the next major cause.

REAL ESTATE COMMISSIONS: (Consumer Federation of America)

6% If your agent agrees to represent you exclusively and shares the commission with another agent: 6%.

5% to 5 1/2% If your agent refuses to represent you exclusively and shares the commission with another agent.

4% to 5% If your agent represents you exclusively and isn't required to split the commission with a second party.

3.5% to 4% If your agent represents both you and the buyer.

LYING- 36% of resumes have falsehoods. People do it because it makes them feel better, have more power, whatever. And the main thing is perhaps that even when they are caught, it may not make a whit of difference.

COLLEGE: The College Board estimates parents will spend about $3 trillion on higher education over the next 20 years.

MONEY: In the case of home sales, Fed research suggests that households end up spending 10 cents to 15 cents of every dollar made. Consumers tend to spend 3 cents to 5 cents from gains on stocks.

MORTGAGE RATES: Declining interest rates have translated into a near record level of mortgage refinancing activity.

BUT THEY WILL PROBABLY NEVER HAVE ENOUGH MONEY: (AEGON) The vast majority of Americans have little tolerance for risk when it comes to their children's college savings, with nearly seven in eight (85 percent) believing that some investments held too great a risk for their children's college funds. While market risk is a serious consideration for today's parents, more than a third of those surveyed (35 percent) classified themselves as ``aggressive'' in their college education investing. Sixty-one percent of those saving for college classified themselves as ``conservative'' investors. Nearly nine in 10, or 87 percent, think tuition costs will be ``astronomical'' by the time their children reach college. And two in five, or 39 percent, believe they will never be able to save enough to send their children to college.

And this was truly hard to believe- Parents also had unrealistically high hopes for their college investments, expecting an annual average return of about 24 percent (that was before 9/11). In reality, however, the investments of those who did save averaged less than half that - 11 percent - over the last year. (I have never used more than 10% in any study) Where do they turn for advice?: one-third (36 percent) said they consult a financial planner, with most relying on spouses (63 percent) friends or relatives (38 percent) or published articles (34 percent).

Two-thirds of parents have taken the first step toward furthering their children's education by saving for college. Two in five, or 40 percent, save regularly, while another 25 percent have saved in the past, but not recently.

Of those who are saving, two-thirds started before their child turned 5, with half saving before the child turned 2. Of those who are not yet saving for college, half (52 percent) said they plan to start eventually, about one-quarter of them within the next year.

On average, parents who do save sock away more than $2,500 a year for each child. The most popular savings vehicles were savings accounts (54 percent); mutual funds (46 percent); savings bonds (38 percent); individual stocks and CDs (26 percent each); and money market accounts (21 percent).

PET AND HUMAN ABUSE: In a 1997 survey of shelters for battered women, 85.4% of women and 63% of children described incidents of family pet abuse.

INSURERS: (Weiss) The profits of the nation's life and health insurers plunged by $3.8 billion, or 53%, in the first three months of 2001. This year marks the first time the industry has suffered a decline in first-quarter profits since 1995, when profits declined 9.5%. This year's decline was caused primarily by a $1.8 billion decline in realized capital gains and a $2 billion, or 17%, decline in overall operations.

And this was BEFORE the Twin Towers- The property/casualty industry suffered its worst second-quarter catastrophe losses in history in the period ended June 30, 2001. Catastrophe losses more than tripled during the quarter compared with the prior-year period, due to Tropical Storm Allison and other severe wind and hail storms.

THIS LTC QUESTION CAME FROM AN ADVISER: "My partner an I are fee-only advisors. We tend to have an elderly clientele. Lately the topic of LTC insurance has come up in several meetings. My partner thinks that LTC Insurance is a waste of money for anyone with substantial assets. I, on the other hand, think that people ought to consider their options whether they are wealthy or not. My basic premise is that the odds/chances of people using a policy is growing increasingly larger than ever. I would appreciate any pointed feedback on the subject.

My reply: I tend to disagree with you partner in this regard. Insurance is NOT just coverage for a financial problem. It is a great emotional tool that provides a peace of mind.

Do you think that Bill Gates has fire insurance on his house? Bet he does- and he can buy all of the state of Washington. Bet he has his wife covered by health insurance.

As regards LTC- I had a dear friend of mine die last year. 80 years of age and came down with cancer. Had money but once the issue of home care because apparent, the children wanted to "help". She acquiesced. They provided bad care and I submit she died prematurely. If she had had a LTC policy, she and those kids would have immediately opted for coverage- and it would have been professional, not some relative meaning well. I think she could have lived another good 6 months. Ask your partner if six months of a good life is worth the cost. I think so.

SAD: About one in 10 girls and one in 20 boys have been raped and/or violently assaulted on dates, and they're far more likely than other teens to develop serious eating disorders

MANAGED CARE: (Managed Healthcare Market Report.) Managed  care premiums are projected to rise a whopping 15% in 2002. That's on top of what will be an 11% to 12% increase in 2001

All power corrupts, but we need the electricity.

HOME SALES: In general, for every $1 increase in consumers' wealth, consumer spending is raised three to five cents. But when a home is sold, with the resulting cash from the capital gains, consumers tend to spend more -- 10 cents to 15 cents of that dollar.

WOMEN ARE NICER PEOPLE- AND THEY WILL SUFFER ACCORDINGLY. (NY Times) Many elderly women do not have enough money to retire. Widows greatly outnumbered older divorced women until the late 1990's, but now for the first time the divorced outnumber widows.

The ranks of older women are swelling with those who divorced and have not remarried. Among the nearly 12 million women in their late 50's and early 60's, for example, 14.4 percent were divorced as of 1998. That was up from 3.8 percent in 1965 and 9.9 percent in 1990. Widows, in contrast, declined to 13.2 percent in 1998 from 21.6 percent in 1965 and 17.2 percent in 1990.

SAD: 1:6 women have either been raped or been the victim of a rape attempt.

THE MAIN REASON WHY PRODUCTIVITY IN THE U.S. WAS HIGH AND WE WILL MAKE IT AGAIN: (NY Times) productivity (earlier this year) per American worker in constant 1990 dollars was $54,870, about $1,500 more than Belgium, the No. 2 nation. The report found that productivity per worker in the United States was $10,000 higher than in Canada last year, and $14,000 higher than in Japan. But partly because of the comparatively high number of hours that Americans work, the report found that France and Belgium edged out the United States in productivity per hour. In France, which ranked first, workers produced $33.71 of value added per hour on average, compared with $32.98 in Belgium and $32.84 in the United States.

The International Labor Organization found that Americans added nearly a full week to their work year during the 1990's, climbing to 1,979 hours on average last year, up 36 hours from 1990. That means Americans who are employed are putting in nearly 49 1/2 weeks a year on the job.

Americans work 137 hours, or about three and one-half weeks, more a year than Japanese workers, 260 hours (about six and one-half weeks) more a year than British workers and 499 hours (about 12 1/2 weeks) more a year than German workers.

Europeans typically take four to six weeks of vacation each year while Americans take two to three weeks. And while American employers kept adding overtime during the 1990's, in France the government reduced the official workweek to 35 hours.

ARBITRATIONS. Historically, only 46% of investors ever get any money back and that is just 36 cents on the dollar. Only a third of winners ever get paid in full. It typically takes 14 months for a claim above $25,000 to work its way through the system.

TECH STOCKS AND FINANCIAL ADVISERS: (USA Today) "The brokerage industry champions the benefits of financial advice, particularly for mutual fund investors. But most investors who bought at the top did so with a professional at their side, Lipper data show. Brokers accounted for 51% -- or $17.9 billion -- of the $35 billion that flowed into tech funds at the market's peak in early 2000.

Brokers continued to push tech funds well after the peak. Broker-sold funds accounted for 67% of the new money to tech funds in the second quarter of 2000 and 80% in the third quarter. Many brokers sold their clients B shares, which charge no upfront load -- but charge higher annual fees and smack investors with a redemption fee if they sell before 6 years."

401(K): A 2001 survey revealed that currently 42 percent of respondents do not seriously consider reallocating their 401(k) investments after they are established. Eighty-four percent of full-time employees consider it very or somewhat important that a company offer a 401(k) or similar retirement savings plan when making the decision to join or stay with a company.

Seventy percent contribute the maximum amount at which their company matches or more.

55 million employees participate in a 401(k) plan to save for retirement. However, only about half of all employees age 18 and older are now offered a 401(k) or similar defined contribution plan, according to the Profit Sharing/401(k) Council of America.