September 20, 2009

Where Are You Getting Advice? Timing the Market?

I spent last weekend and the first part of this past week in San Diego with 1,200 other investment advisors at the annual Schwab Impact conference. It is always good to getaway to hear from various corporate and political leaders, economists and analysts, and other advisors. I usually come away a bit sleepy but full of energy, and this year was no different.

The past year has been one for the history books, and most of my colleagues and me have learned quite a bit I believe. I was preaching diversification before, and I continue to preach it. I was saying to continue to contribute to your 403b (or 401k) which allows you to dollar cost average, and that is still the way to go. These are not new interesting ideas, but they make up some of the foundation of investing.

In my discussions this past week, I heard that some advisors are seeing an "uptick" in the number of "financial advisors" trying to say how they can "time the market" and get in and out at the top and bottom. When you hear this... be very, very cautious. It is always easy to say whatever, but the reality may be somewhat different.

Timing the Market

Yesterday I mentioned that sometimes I am told that a friend/relative/neighbor sold out at the top and bought in at the bottom (in the past it has always been the "hot" stock). This is almost impossible to do. In fact, I have had numerous people ask when is the market going to go back down so they can get in again. After talking to most of these people, they generally have sold out at the very bottom of the market.

In a post this summer, I discussed "capitulation" as when investors have had enough, throw in the towel, and flee the market. Unfortunately, this is usually what most of the people waiting to get back in did. Not all of them but a majority of them did this very thing. I definitely understand it.

If you are still sitting on the "sidelines" waiting for the market, you are taking a big risk there too. Wherever your money is just sitting waiting, there are risks there too.

  • Inflation Risk - The possibility that inflation will rise thus decreasing the buying power of a dollar.
  • Interest Rate Risk - The possibility of a reduction in the value of a security, especially a bond or CD, resulting from a rise in interest rates.
  • Principal Risk - The risk of losing the amount invested due to bankruptcy or default. There is always the possibility that through some set of circumstances, invested money will decrease or completely disappear. In this case, principal is lost, not just profits. Even with CDs, this is a risk if you go over the FDIC limit.
  • Opportunity Risk - The risk that a better opportunity may present itself after an irreversible decision has been made. Example - Buying a 5 year CD at a nice rate now, but if rates rise substantially after even 1 year, you will get hit with a penalty to break the CD and start over.
All of the above are not meant to scare anyone to move, but to point out that every decision has a bit of risk involved. If you jump from one thing to another, you are creating even more risks for yourself.

My wife has a saying, "Plan your work. Work your plan." Simple I know, but it lends itself here too. Where do you want to be? How are you going to get there? What are the risks involved? These are just part of what advisors try to think about every day for our clients. Are you thinking about this? Is your advisor?

September 19, 2009

How Are Your Investments Performing?

If you have been asleep for all of 2009, you have missed quite a ride in the stock market. Through Thursday, the S&P 500 is up over 20% for the year, and that is quite an accomplishment any year.

I don't believe that anyone saw a year like this coming, but hindsight is always 20/20. I am sure you will hear about people that bought in exactly at the bottom and have made untold amounts of wealth. Every time I hear someone tell me that their friend/relative/neighbor did, I just ask to see the statements. No one has produced one yet.

What I do believe is that the most prudent people watched their diversification, scaled back a little if they were nervous, but they tried to look long term. I wrote several pieces about trying to think beyond today and be logical. Emotions play a big part in our lives, but they can also lead to hasty decisions. I am sure that we have all experienced those moments, and I will be the first to admit that I have many times in my life. When it comes to financial matters though, it is usually the well thought out, informed decision that gives us our best chance for the future.

When I hear different people say that "now" they want to start investing, I think about the past six months. It is hard to imagine that we have come from the "brink" of the depression to a market and economy that seem to be pointed higher. The big moves in the market though are mostly behind us, but the future still looks good. I did want to point out some things I said in the past...

  • "In 2002, the the S&P 500 lost 23.37%. At the beginning of 2003, the market continued to trend lower, and a funny thing happened, it turned around. By the end of the year, the S&P 500 had gained 26.39%.

    I am not saying that 2009 will be a spectacular year and everything will be rosy, but if do your research and diversify your investments, you will at least be giving yourself a chance to participate."

    - January 14, 2009 - 2009 Investment Options for Your 403(b)

  • "This is not the end of the world. I know it is hard to believe, but America will survive. As Warren Buffett's letter to Berkshire Hathaway shareholders said over the weekend, 'Our country has faced far worse travails in the past,' he said. 'Without fail, however, we've overcome them.'"

    - March 3, 2009 (one week before the bottom) - Current Investment Options

  • "If you were to go back and look at the history of the economy and stock market, it would show you several things. First, when the Fed and US government start turning on the money, things happen. It might be like turning a cruise ship, but they happen. Second, the market points to a recovery well before the recovery is felt elsewhere.

    The stock market is essentially a predictor of the future. It is generally 6-9 months ahead of the economy all the time. The market started to drop in the fall/winter of 2007... the economy started to show some cracks in the summer/fall 2008."

    "No one can say that we are there yet until we see it in the rear view mirror, but the positives are starting to show. The market has turned up, the banks have said they will be profitable in the first quarter, and some good economic numbers have started to move positive from the negative slide.

    The market is never a smooth ride, but the signs are moving to a direction that makes the future much more acceptable. There will be bumps and drops (there always are), but the long term investor looks to have a brightening future. Just remember the lessons you have learned over the past six months..."

    - April 3, 2009 - Is History Repeating Itself? Looking Forward on the Market
Was I crazy, smart, or just trying to learn from the past?

My approach to investing is not radical or new, but sometimes it does test a bit of even my faith. I try to take the current outlook and look at it from a historical perspective. I cannot "see" the bottom or the top, but I can see what has worked, what has not, what has changed, and then decide what I think is the best approach. As a friend told me... "Boring!"

I hope all of you have done well thus far this year, and I hope I have helped a little along the way. As always, if there is is anything I can do to help, please let me know -

September 8, 2009

New Website Design

Over the past 15 months, I have now written 100 posts for The Educator's Retirement blog, and the site has never been changed. Well, over the long weekend, I had some time (and energy), so I decided to make some changes.

I hope you will go to the site (, look around, and let me know what you think.

It is still a work in progress, but since I am trying to find the best way to get information across to educators, your input is appreciated. Should something else be added or taken away? The fonts, colors, and spacing acceptable?

Usually, we are just told this is the website and go to it, but if there is something I have overlooked or not thought of, I will definitely look to make some changes. You are the focus group, test subjects, and end users. Let me know what you think -

Thanks for helping.

September 7, 2009

Thank You

I just wanted to thank everyone for the kind thoughts and words regarding Stormy. It means more than you know that people I have never met and reside around the country took the time to read and send an email about our pet. My wife and I really appreciate it.

I wish you all only the best.

What Should We Look For in Health Care Reform?

Health care reform. It has become a firestorm topic, but most people agree that we do need some type of reform.

I have heard the rumors, researched some of the current House bill (H.R.3200 - America's Affordable Health Choices Act of 2009), listened to debates, read editorials, and finally, just tried to put most of it all together in one item. Hopefully, this post addresses most of the issues that everyone wants to know about and some that people are leaving out.

Looking at the Problem

The problem is we currently have about 46 million people in the US that are not covered by insurance. The Census Bureau provided the following statistics regarding the uninsured:

Total uninsured people in the United States46.0 million
Less non-U.S. citizens (many here illegally)(9.7 million)
Less household annual incomes greater than $50,000(10.0 million)
Less household annual incomes greater than $75,000(7.0 million)

From what I have read, most of the people in the under $50,000 in annual income qualify for programs or medical insurance from their employers but they either do not accept coverage or do not know about the coverage. Those with income over $75,000 can afford the coverage but they either do not want it or are self-insured.

Everyone should be signed up, but if you don't want it should you be forced to have it? In Massachusetts (state mandated plan), they said yes. If you do not have insurance, you are "taxed" on your state tax return. The end result is if you don't want it, you are pretty much going to pay for it anyway. Besides if something happens, the system will need to take care of you, and you should be able to receive care.

The interesting thing is the "healthy" people would spread the cost and make insurance actually cheaper for all. Think about your car insurance policy. You MUST have at least liability, but most also have collision, comprehensive, and uninsured motorist coverage. You have the additional coverage because you do not know what will happen, but you must have the basic liability coverage to drive the car. If everyone had insurance, we could pay less because there would not be a need for uninsured motorist coverage.

"Of the total uninsured, roughly 40% are age 18 to 34, and they are in basic good health. They have, apparently, elected to put their dollars elsewhere in the economy rather than in buying medical coverage. It is presumed that those with annual incomes greater than $50,000 do not buy medical insurance because they do not feel they need it or they are self-insured. They clearly could afford coverage, but elect not to purchase it." - Healthcare Relief Without Universal Health

What We Should Do

First, Congress wants to argue everything all at once, and some of the controversial issues are holding up the whole plan. It would be a good idea to divide the bill into three bills - one that has all of the things people agree on, one that has things that most agree on, and the ones that are causes the biggest problems. This lets the President and Congress say they have done something, and then the can go to work on the nitty-gritty stuff.

Be responsible! We all need to be responsible for ourselves. We all hear about the role that our doctors, insurance, and government should play, but what about pointing the finger a little more at ourselves. Eat right, exercise, sleep, watch your body fat, etc. If we all did these things, our population would be healthier with fewer ailments, and just that would start to lower costs. We can all go to doctors, clinics, etc., but we all must start to focus some of the issue on us as well. If we were overall healthier, we could focus even more on cancer, blood disorders, mental disorders, Alzheimer's, etc. that have nothing to do with how healthy we live.

Control costs!!! How? In Vermont they have 39 Federally Qualified Health Centers that are essentially a "doc in a box" that takes everyone (Hard to Believe! By Bob Herbert - The New York Times). They have a sliding scale for those without insurance, and it has relieved a strain on the system because these people are not going to the ER.

People without health insurance traditionally go to the ER for free medical coverage because they cannot be turned away. If you do go to the ER for say a sore throat. You will wait hours, probably see a PA (physician's assistant), and most likely get billed more than a $500. If you go to a local clinic instead, you will wait less time, get at least the same care (possibly by a doctor), and get billed about $150 or so.

Remove the crush on the ER, and suddenly health care costs will be cut. Save the ER for real emergencies. The ER wait times will improve and the cost will come down... a win-win.

Illegal aliens? None of the current plans even address it. A plan without addressing one of the largest issues is like buying a house without a roof. As long as it doesn't rain... no problem, but when it rains, you are in huge trouble.

If we had the clinics, you could make them not rely on resident status. Also, we must come to grips with the cost they provide on the system with little or no contribution. I am not trying to say to go after them for money, but if they are working in the US and being paid, FICA should be levied and the employers are also to blame.

The government option... get rid of it. Every program the government runs turns into an issue. Medicare, Medicaid, Social Security, Cash for Clunkers, Congress, etc. If you make it a government bureaucracy, you have done nothing but raise the price and lower the benefit.

Private Insurance... should be regulated on the national level and not by all of the various states. We should at least have a national regulatory agency that sets the standards, and if the states wish to go above it, then we cannot stop them, but the basic coverage should be the same from Maine to Nevada.

As with natural gas in Georgia, there should be a "last resort" insurer. This means that if all of the private insurers have higher rates, there should be a government subsidized plan that kicks in for those based on their income. Think Kaiser, Blue Cross/Blue Shield, etc.

Living wills? Yes! Everyone should have them, but the issue is do not allow a stage 4 cancer patient to not receive treatment. Terminal cases where the patient is non-responsive is one thing, but to deny a cancer patient treatment is something else.

Insurance Portability? YES!!! This is one of the biggest problems from a society that continues to change jobs and careers. Make the insurance portable with guaranteed coverage for pre-existing conditions and if you get sick. That is why you need the insurance in the first place.

Preventative Care is a must. It has shown time and time again to reduce overall costs even though the short term may seem more expensive. We have a long term problem, and the short term is of little consequence.

What We Cannot Do

Tax the rich... The "rich" cannot continue to foot the bill for the entire country and the fix for all too. They cannot fix social security, health care, etc. by raising taxes a few points. It will not work. Congress is already probably going to let many of the Bush tax cuts expire, so revenue "should" increase. Are we to also add a "surtax" on their income too?

Not Compromise! This is a plan that is supposed to benefit everyone, and neither party has exactly been the picture of thinking of the greater good. Both republicans and democrats MUST come together for a plan that the country will get behind, or we will continue to have a fractured nation where the people do not trust the government.

Where to Look for Answers

There are a million different good ideas, facts, figures, and articles written about health care. I am going to mention a few below:

I have probably read more on this one topic in the past month than for any other topic I have written about. We are in the midst of having full coverage, but it must be done responsibly.

I worry that the cost of the plans the democrats have will be so great that in 5 years we will be trying to fix or undo what has been done when the program is in shambles. I also worry that the republicans are missing the boat to actually come together on a huge social issue and make it the best possible plan for the good of the nation.

We need reform, and we do have the possibility of having it, but let's make sure we get it right the first time.

September 6, 2009

Farewell to Stormy

I have been writing a post over the past week on health care that I cannot seem to finish at the moment. My little world that deals with all things financial cannot compete with my little friend Stormy, so if I can, today I want to discuss him.

On Saturday my wife and I found out that one of our cats, Stormy, had unfortunately been killed by a coyote. There are millions of things to say, feelings to express, and memories to share, but the end result is that when you don't have kids, your pets become your kids.

Stormy was found in Conyers, Georgia just over nine years ago by a neighbor in a storm drain (thus you get Stormy now). He was a little runt of an orange tabby kitten that had a bloated stomach from being malnourished and was covered in fleas. Needless to say, my wife and I immediately had a soft spot for the little guy. Three weeks later, he had gained 2 pounds, did not have a single flea on him, and was enjoying the life of a spoiled kitten.

Stormy grew into a big cat that even at 14 pounds was not overweight for him. He had a birthmark black spot on one of his front paws that we mistook for an oil stain at first. He was the "king of neighborhood" as one of my neighbor's liked to say. He would lay with front paws stretched out and crossed in front of him as if everyone else was his servant. He was obviously the top of the pyramid when it came to our cats and those in the neighborhood, yet he rarely showed the fierceness within him.

To my wife and me he was the big lovable orange tabby that would get in your lap or face if you weren't paying him enough attention. He was there watching me work in the yard, talk to neighbors, or waiting for me to get home to play. He was almost always the first to come when I whistled to call the cats home at night. His ears would perk up, and I would see him trotting home.

We know pets are sadly not with us along as we want, but we are grateful to them for the times we do get to share. Stormy was a sweet boy that came into our lives completely unexpected nine years ago and sadly left just as quick yesterday. We will miss him, but we know he is always in our hearts and minds.

September 5, 2009

Points of View

A Teachable Moment - The Wall Street Journal - "President Obama's plan to speak to America's schoolchildren next Tuesday has some Republicans in an uproar. 'As the father of four children, I am absolutely appalled that taxpayer dollars are being used to spread President Obama's socialist ideology,' thunders Jim Greer, chairman of Florida's Republican Party, in a press release. 'President Obama has turned to American's children to spread his liberal lies, indoctrinating American's [sic] youngest children before they have a chance to decide for themselves.' Columnists who spy a conspiracy behind every Democrat are also spreading alarm."

Accountability in Public Schools - The New York Times - "The Obama administration laid down an appropriately tough line in late July when it released preliminary rules for the $4.3 billion pot of money known as the Race to the Top Fund. The administration rightly sees it as a way to spur reform by rewarding states that embrace high standards and bypassing those that do not."

Indianapolis Tests Out Education Reform - By Matthew Tully - The Wall Street Journal - "The classrooms were full and bustling with activity at Valley Mills Elementary School on the city's southwest side one recent rain-soaked morning. Children smiled and raised their hands, eager to answer questions, and to tell me how happy they were to be in school on a summer day. This was not your father's summer school—punitive and mandatory—but a fresh approach to bridging the achievement gap."