Charleston Financial Advisors

45 Lessons

Mon, 05 Jul 2010 06:46:00 -0700

This is something we should all read at least once a week. It was written By Regina Brett, of The Plain Dealer, Cleveland , Ohio. When she turned 90 years old, she wrote the 45 lessons life taught her to celebrate growing older. It was her most-requested column:

1. Life isn't fair, but it's still good.
2. When in doubt, just take the next small step.
3. Life is too short to waste time hating anyone.
4. Your job won't take care of you when you are sick. Your friends and parents will. Stay in touch.
5. Pay off your credit cards every month.
6. You don't have to win every argument. Agree to disagree.
7. Cry with someone. It's more healing than crying alone.
8. It's OK to get angry with God. He can take it.
9. Save for retirement starting with your first paycheck.
10. When it comes to chocolate, resistance is futile.
11. Make peace with your past so it won't screw up the present.
12. It's OK to let your children see you cry.
13. Don't compare your life to others. You have no idea what their journey is all about.
14. If a relationship has to be a secret, you shouldn't be in it.
15. Everything can change in the blink of an eye. But don't worry; God never blinks.
16. Take a deep breath. It calms the mind.
17. Get rid of anything that isn't useful, beautiful or joyful.
18. Whatever doesn't kill you really does make you stronger.
19. It's never too late to have a happy childhood. But the second one is up to you and no one else.
20. When it comes to going after what you love in life, don't take no for an answer.
21. Burn the candles, use the nice sheets, wear the fancy lingerie. Don't save it for a special occasion. Today is special.
22. Over prepare, then go with the flow.
23. Be eccentric now. Don't wait for old age to wear purple.
24. The most important sex organ is the brain.
25. No one is in charge of your happiness but you.
26. Frame every so-called disaster with these words, 'In five years, will this matter?'
27. Always choose life.
28. Forgive everyone everything.
29. What other people think of you is none of your business.
30. Time heals almost everything. Give time time.
31. However good or bad a situation is, it will change.
32. Don't take yourself so seriously. No one else does.
33. Believe in miracles.
34. God loves you because of who God is, not because of anything you did or didn't do.
35. Don't audit life. Show up and make the most of it now.
36. Growing old beats the alternative -- dying young.
37. Your children get only one childhood.
38. All that truly matters in the end is that you loved.
39. Get outside every day. Miracles are waiting everywhere.
40. If we all threw our problems in a pile and saw everyone else's, we'd grab ours back.
41. Envy is a waste of time. You already have all you need.
42. The best is yet to come.
43. No matter how you feel, get up, dress up and show up.
44. Yield.
45. Life isn't tied with a bow, but it's still a gift.

Financial Reform, A New Day for Consumers

Fri, 25 Jun 2010 10:43:00 -0700

Provisions in the financial bill will change many ways of doing business.

The New York Times deccribes some of the biggest consumer issues addressed in the financial reform bill:

From Card Fees to Mortgages, a New Day for Consumers

By RON LIEBER and TARA SIEGEL BERNARD

Published: June 25, 2010

Father of Modern Finance Weighs In

Fri, 18 Jun 2010 11:38:00 -0700

Eugene Fama, Professor of Finance at the University of Chicago, was internviewd about the recent financial crisis, capitalism, efficent markets and financial regulatory reform. The video is worth watching to get past the hype and back to the basics.

How High Can the Retirement Age Go?

Wed, 02 Jun 2010 07:16:00 -0700

How high can or should the retirement age go, and should it be tied to increases in life expectancy? What will changes in retirement patterns mean for the United States, compared with Western Europe?

The editors of The New York Times offer a thought provoking discussion: Room for Debate: How High Can the Retirement Age Go?

Words to Invest By

Fri, 21 May 2010 09:07:00 -0700

Raise your right hand and repeat after me. "An Investor's Manifesto":

Source: Kiplinger By Knight Kiplinger June 2009

I am an investor. I do not trade my assets frequently. That's speculation, not investing.

I am also a saver, fueling my investments with continuous savings from current income.

I know that every kind of asset entails risk -- even cash, which can be eroded by inflation.

I know that higher returns entail higher risk, in every kind of asset.

I accept those risks, but I mitigate them by owning a diversity of assets.

I regard my home as a place to live, not as an investment. It is not a substitute for retirement savings.

I have an investment plan and a plan for asset allocation, in consultation with a financial adviser.

I invest regular amounts every month, in both rising and falling markets. I know I can not gauge market tops and bottoms. If I receive a windfall -- a bonus, bequest or gift -- I gradually feed it into my regular investment mix.

I don't pour more money into hot markets nor completely cash out of plunging markets.

I spread my investments among several asset classes, in a mix fitting my age and risk tolerance.

I rebalance my portfolio every quarter. If the stock market plunges, pushing my stock allocation way below its target percentage, I sell bonds and use my cash to buy stocks.

I force myself to sell high and buy low by periodic rebalancing-just what is temperamentally difficult for most investors to do.

I know that stocks are risky in the short run, so I hold in equities no money for which I have a likely need in the next three years.

But stocks are not too risky in the long run. They have outperformed all other commonly traded assets over periods of 15 years and longer.

Foreign stocks account for at least 15% of my stock allocation. I believe that developing economies will enjoy much higher growth than the U.S. in the decades ahead.

I never borrow against my stocks. Margin calls could force me to sell good assets at a bad time.

I stick with my game plan. I do not check the value of my investments every day or even every week.

I try to keep my cool when other folks are losing theirs.

I remind myself often: I am an investor.

Money Tips from Mom

Fri, 07 May 2010 06:14:00 -0700

Your mother may have taught you more about managing your finances than you realize. Here's a list of those lessons.

By Bankrate.com

Think Mom didn't teach you anything about money? Maybe you simply weren't paying attention.

1. "Have a place for everything, and everything in its place."

Ever tried to balance your checkbook or pay the bills when you couldn't lay your hands on one all-important piece of paper? And when are those bills due, anyway?

Organization is "very important in your financial life," says Douglas Borkowski, the director of the Financial Counseling Clinic at Iowa State University. When he was growing up, "Mom and Grandma were the ones who kept things organized," he says.

2. "Don't be late."

Mom was probably talking about school, but the rule applies to money, too. "You'd better pay your bills on time," says Les Kotzer, an attorney and a co-author of "The Family War: Winning the Inheritance Battle." Otherwise, you face increased interest rates, late fees and all kinds of financial penalties, including a damaged credit rating.

3. "You can do anything if you set your mind to it."

It's a fact: Set a goal and write it down, and you're much more likely to attain it. (Think of it as jotting down directions to a place you've never visited.) It works the same for financial goals.

When it comes to income, debts and savings, "you have to know how the pieces fit," Borkowski says.

4. "Know your own value."

Financial adviser Kathleen Miller gave her daughter the same advice she gives her clients: Make a net-worth statement every year.

On one sheet of paper, tally what comes in and what goes out. Include what you own and what you owe.

It's a great way to take a yearly snapshot of your financial life, says Miller, the head of Miller Advisors, a fee-only financial planning firm in Kirkland, Wash. And it doesn't require any special math know-how.

Save the sheets from year to year and you have a "financial diary," which is "a real good way to have a very, very quick review," Miller says.

5. "Do your homework!"

Whether you're looking for the best interest rate for your savings account or trying to find out if that investment tip is everything it's cracked up to be, doing your homework is still important.

It also puts you in control of your finances, says Kotzer. By doing your own research and getting educated on topics that concern you financially, "you're not always dependent on what others are telling you," he says.

6. "Practice, practice, practice."

Want to stay home with the kids? Great move. But keep your skills sharp, just in case. "Over 50% of first marriages end in divorce," says Miller, the author of "Fair Share Divorce for Women".

"Maintain your skill levels and connections because it's so hard if you have to get back in," she says.

7. "Don't be afraid to ask for help."

Whether it's getting a great haircut or planning your retirement, there are some situations in which it pays to hire a good professional.

Kotzer remembers his mother's rule: "Certain things you do on your own; for others, you hire experts." Unfortunately, he says, "we've become a nation of do-it-yourselfers." As a result, he says, we're "not utilizing experts who can make our lives easier."

There are "a lot of people who are missing out on a lot because they're not getting proper advice," Kotzer says. "Take advantage of someone else's years of education."

8. "Take your time, and check your facts."

Mom may have been talking about your math homework, but chances are this is one lesson she wanted you to take outside the classroom, too.

"In relationships or in money, it's so easy these days to con people," says Miller. Smart consumers "have to read the fine print," she says.

Taking your time to make a smart decision, or a timeout from making any decision, is a good strategy to keep from getting scammed or talked into a less-than-advisable situation.

"There are a lot of things you learn as you get older," Miller says. "One is that you can take a little time to make a decision."

9. "Be yourself."

Remember all the times you asked to do something because "everybody else is doing it"? Chances are, Mom tried to get you to think for yourself. In an era of commercials, text messaging, cell phones and the Internet, adults and kids are continuously bombarded with information and images of what everyone else is doing, selling, buying or consuming. That can have huge financial implications as you try to balance immediate gratification with long-term goals such as education and savings.

"Try not to be so influenced by the media and all the other voices, and try to take the time and listen to your own voice," says Miller.

10. "There's more to life than money."

More than anyone, moms know the importance of an extra dollar or two. At the same time, they also know what's really valuable.

Kotzer remembers one elderly woman who came to him shortly before she died. Her biggest worry: Her two kids weren't speaking to each other. She gave Kotzer an envelope and asked him to call a meeting between her son and daughter after she'd died to reveal the contents.

A short time later, Kotzer did exactly that. In the envelope was a collection of photos from when the kids had grown up together. There were shots of them arm in arm, on the way to school, playing, laughing and hugging. Along with it was a note from their mother, reminding them how much they loved and cared for each other as children and young adults, and telling them to look out for each other now. The last line brought the two grown siblings to tears. She wrote: "I'll be watching you."

Says Kotzer, "She brought the two kids together with her words."

This article was reported and written by Dana Dratch for Bankrate.com.

Long Term Care included in Health Care Reform Bill

Thu, 22 Apr 2010 09:23:00 -0700

A topic most people would rather avoid – how to pay for care as you age - is getting some much-needed attention thanks to its place in the federal health care overhaul. Included in the reform bill is the Community Living Assistance Services and Support (CLASS) Act, a long-term care program that will be administered by the federal government.

While the added focus on long-term care planning is certainly positive, one local specialist says it doesn’t mean people still don't need to make their own preparations. Barbara Franklin, owner of Franklin & Associates, a Charleston-based company that specializes in long-term care planning and financing, says the CLASS Act is a start - but not a panacea - for dealing with the issues of paying for care.

Simply stated, the CLASS Act creates a voluntary government program under which individuals will pay a monthly premium and will be eligible for modest benefits for their long-term care needs after five years of paying premiums. Employers of a certain size would institute payroll deductions to cover the monthly premiums, but workers could opt out of the program.

"The intent of this program is admirable - to provide care to the working disabled - but there are too many unknowns at this point for everyone to forego their own planning in favor of a government program," Franklin says. "The fact is if you want to know you’ll have quality care when you need it, you've got to plan for it yourself."

Although the CLASS Act is part of the health care reform bill, the Department of Health and Human Services is required by law to put together the details, which are due by the end of 2012.

The CLASS program differs from traditional long-term care insurance because there are no health qualification requirements. Franklin says the premium may be costly because the program could be most attractive to those with health problems and who are most likely to have needs that would tap the program. The benefits provided by the CLASS Act - expected to be in the range of $50 to $75 per day - are also substantially less than what is available with long-term care insurance.

"Over time, this program will change the landscape of long-term care financing in our country and encourage people to think about their future," Franklin says. "But the specifics about the CLASS Act are unclear and we just don't know enough to gauge the long-term viability. What we do know is that it doesn't eliminate the need for planning ahead."

About Franklin & Associates
Founded in 1995 by Barbara Franklin, Franklin & Associates helps individuals, couples, families and business owners throughout the United States with long-term care planning and financing. Franklin is very active with the local senior community, serving on the board of the South Carolina Aging in Place Coalition and former president of the Lowcountry Senior Network. She also sits on the advisory council of the Lowcountry Senior Center on James Island and on the board of directors of the Trident Area Agency on Aging. Nationally, Franklin is on the advisory council of the American Association for Long Term Care Insurance. For more information, call (843) 762-4260 or visit www.franklinassociatesinc.com.

The Number No One Mentions

Tue, 13 Apr 2010 12:08:00 -0700

Unlike anything else we buy, the amount of healthcare we recieve is unrelated to what we pay for it. The following article by David Gratzer articulates this phenomenon:

The Health Care Number You Didn't Hear

On Thursday, the President gathered with Congressional members to discuss health reform. The President and Democratic leaders spoke of many numbers in their attempt to rebuild support for their proposals.

They mentioned 30 million (the number of uninsured Americans, according to the White House), 17 (the percentage of GDP spent on health care), and 1912 (the year when Teddy Roosevelt first called for universal coverage). But here's the number that no one mentioned: 12. And while all the other numbers are important, the key to reforming American health care rests with that one number, unmentioned.

American health care is expensive. If we spent what Switzerland does, we could cut income tax rates by 80%. And American health care is getting more expensive. Federal government figures indicate that health costs rose by 3.4% last year, roughly double the rate of inflation. It's not surprising, then, that the Obama White House has advocated "bending the curve" of health costs since Inauguration.

And, for the past year, the Administration has attempted to explain to Americans why health costs keep rising. The President spoke in July of Americans being offered two pills - "a red pill and a blue pill" - that are equally good, but one is half the price. Translation: drug companies are greedy. The President toured the Mayo Clinic, one of the best hospital complexes in the world and noted that Mayo physicians are on salary. Translation: your fee-for-service doc is greedy. The President used his September address to a joint session of Congress to bemoan the dearth of competition in the health insurance industry. Translation: insurance companies are greedy (and running a cartel).

If greed is the trouble, the White House seeks to address these woes with a raft of new regulations and rules. Obamacare will cut the profitability of pharmaceutical companies; it will create a committee to pay doctors for what the committee views as quality medicine; it will introduce a new Medicare-style public insurance to compete with private providers. Washington, in other words, will grow. The House version of the White House's proposal would create more than 100 new federal agencies and bodies.

But the problem with American health care isn't greed, its structural. After all, food and clothing are all organized with the profit motive - and the President isn't giving speeches that your butcher is too greedy or that Macy's is overly concerned with the bottom line.

The problem, ultimately, is 12.

A bit of background: American health care is an accidental system. Private coverage - the type most Americans have - has its origins in the wage controls of the Second World War as employers offered rich health-insurance benefits in pre-tax dollars. Public coverage like Medicaid and Medicare, on the other hand, takes its inspiration from the Beveridge report in Britain, drafted in the early 1940s; Lord William Beveridge believed in zero-dollar health care - that people ought to pay nothing at the point of use. Today's American health care fuses these two systems, but with a common economic flaw: people are overinsured, paying pennies directly on every dollar of health service they receive.

The end result: for every dollar spent on health care in the United States, just 12 cents comes out of the individuals' pockets. Imagine what food costs might be if your employer paid 88% of your grocery bill or what a trip to Saks might be like if your company covered the vast majority of the costs of the shopping spree.

Far from addressing the 12 cent problem, Obamacare would exacerbate it. With its rich subsidies, expansion of government programs, insistence that all insurance cover specific services (and some with no copayments at all), Obamacare would pour fuel on the fire of health inflation. It's one reason that even the chief actuary of the Centers for Medicare and Medicaid Services - a federal employee - predicts cost rises under the President's plan.

The White House has been sharp with its critics, demanding that they outline an alternative vision. Here's one: that Washington move decisions away from bureaucrats (be they corporate or government) and empower individuals and families. In other words, American health care should be more like the other five-sixths of the economy where consumers spend more of their own money - certainly much more than 12 cents on the dollar - and get more value for it.

Dr. David Gratzer, a physician, is a senior fellow at the Manhattan Institute. He is the author of Why Obama’s Government Takeover of Health Care Will Be a Disaster (Encounter Books, 2009).

Money Madness

Tue, 06 Apr 2010 12:07:00 -0700

Similar to many of you, I watched with amazement as Northern Iowa beat Kansas in the men's NCAA basketball tournament. Kansas was favored to win the entire tournament. The last time Northern Iowa made it past the second round was in 1990. Farther east, 12th seeded Cornell upset 4th seeded Wisconsin to move onto the Sweet 16. Cornell had yet to win a tournament game before this year. As of March 19th, there were 4.8 million brackets submitted to ESPN. After the first day of the tournament, only 56 were correct. There were so many upsets that only .001% of participants were correct. And that was just after the first day.

After the second day, there were no brackets completely correct. Most brackets, on average, have missed 10 games. This is called a survival rate and this year, nobody survived.

A very similar thing happens in the world of investments as investors compete with each other for returns. Every year some funds beat their respective benchmark. These are the survivors. The next year, some of the survivors will beat their respective benchmarks again and move on in the bracket. But what is the survival rate and what are the implications of the survival rate? Consider the chart below.

This graph shows the percentage of actively managed funds that beat their benchmark in consecutive years. In 2004, 33% of funds beat their benchmark. By 2008 only 1.4% of all funds had beaten their benchmark every year. Although the survival rate for actively managed equity funds is higher than this year's NCAA tournament, the implications are huge.

Many people believe that as a group active managers can add value. In order to do so, one has to choose winners in advance. Often they chose managers with strong past performance, much like 42% of people that had Kansas winning the entire tournament. However, the evidence suggest that this is extremely hard and may have more to do with luck than skill.

For bond funds, it's the same story. After 5 years, by 2008, only .5% of all actively managed bond funds beat their respective benchmarks. That's 7 out of 1,670.

So the implications for the investor are simple. You have two choices. You can simply invest in the benchmark and after 5 years have beaten 98.6% of all other funds, or you can take your chances at beating those benchmarks. Your chances of winning are, of course, slim to none. Your chances of losing are high to inevitable.

Concise Summary of Tax Effects of New Health Reform Law

Tue, 30 Mar 2010 12:04:00 -0700

How will the new health-reform law affect your taxes? Here are 10 provisions that could affect you, with some kicking in sooner rather than later. This is a good summary by Kristen Gerencher of the tax effects of the new heath reform law that appeared in MarketWatch Blogs:

1. A 10% tax on the use of indoor tanning beds will take effect for services on or after July 1.

2. Later this year, people with flexible spending accounts will see a slight change: No more using those pretax dollars to buy over-the-counter medications.

3. The bigger change to FSAs comes in 2013, when the amount you can sock away for health expenses will be capped at $2,500 a year. Many people lowball the amount they set aside anyway because they’re afraid of forfeiting money with the use-it-or-lose-it nature of these accounts, but others who use their FSAs to get a break on expenses for chronic illnesses may have to change their financial planning accordingly.

4. Starting next year, the penalty for using a health savings account for nonqualified medical expenses rises to 20% — double what is now.

5. Starting in 2013, people with income above $200,000 for singles or $250,000 for married couples will see their Medicare payroll taxes rise nearly 1 percentage point to 2.35%.

6. A new Medicare tax of 3.8% will be levied on high earners’ investment income including interest, dividends and capital gains that exceed those two $200,000-plus thresholds.

7. Also in 2013, if you itemize on your income taxes, the amount you’ll need to claim a deduction for medical expenses will rise to 10% of adjusted gross income from today’s 7.5%. But people age 65 and older won’t face the 10% threshold until 2017.

8. Starting in 2014, for the first time most Americans will be required to carry health insurance, with government subsidies if they can’t afford it, or face a fine. The fines for noncompliance are set to rise annually, beginning with $95 or 1% of income, whichever is greater, and growing to as much as $695 or 2.5% of taxable income by 2016. While some state attorneys general are challenging the legality of this provision, many experts say it’s likely to stand. Enforcement mechanisms are still being worked out, but one may be that taxpayers have to submit proof of insurance on their tax forms.

9. Looking further out, an excise tax of 40% on high-cost health insurance begins in 2018. It will apply to the amount of annual premiums exceeding $10,200 for individuals or $27,500 for families, but the thresholds are higher for early retirees and workers in certain high-risk jobs. The tax is supposed to hit insurers or plan administrators, who may or may not pass it on to workers.

10. There’s good news for small businesses. Those with up to 25 employees will be eligible for new tax credits starting later this year to help them provide coverage for their workers. The tax credits would cover up to 35% of the cost of health-insurance premiums. About 4 million small businesses are expected to qualify.

10 Financial Terms Everyone Should Know

Mon, 22 Mar 2010 08:14:00 -0700

Understanding financial matters can be difficult because of the jargon used. Becoming familiar with these ten financial terms may help make your financial picture clearer.

1. Time value of money

The time value of money is the concept that money on hand today is worth more than the same amount of money in the future because the money today can be invested to earn interest. Why is it important? Understanding that money today is worth more than the same amount in the future can help you evaluate and compare investments that offer returns at different times.

2. Market volatility

Market volatility measures the rate at which the price of a security moves up and down. If the price of a security historically changes rapidly over a short period of time, its volatility is high. Conversely, if the price of a security rarely changes, its volatility is low. Why is it important? Understanding volatility can help you evaluate whether a particular investment is suited to your investing style and risk tolerance.

3. Inflation

Inflation reflects any overall upward movement in the price of goods and services in the economy. Why is it important? Because inflation generally pushes the cost of goods and services higher, any estimate of how much you'll need in the future--for example, how much you'll need to save for retirement-- should take into account the potential impact of inflation.

4. Asset allocation

This strategy means spreading investments over a variety of asset categories, such as equities, cash, bonds, etc. Why is it important? How you allocate your assets depends on a number of factors, including your risk tolerance and your desired return. Diversifying your investments over asset classes can potentially help you manage risk and volatility.

5. Net worth

Net worth is what your total holdings are worth after subtracting all of your financial obligations. Why is it important? Your net worth will probably fund most of your retirement years. Therefore, the faster and bigger your net worth grows, the earlier and more comfortably you will be able to retire. Once retired, preserving your net worth to last through your retirement years is your goal.

6. Five C's of credit

These are character, capacity, capital, collateral, and conditions. They're the primary elements lenders evaluate to determine whether to make you a loan. Why is it important? With a better understanding of how your banker is going to view and assess your creditworthiness, you will be better prepared to deliver appropriate information to obtain the loan you want or get a better interest rate.

7. Sustainable withdrawal rate

Sustainable withdrawal rate is the maximum percentage that you can withdraw from an investment portfolio each year to provide income that will last, with reasonable certainty, as long as you need it. Why is it important? Your retirement lifestyle will depend not only on your assets and investment choices, but also on how quickly you draw down your retirement portfolio.

8. Tax deferral

Tax deferral refers to the opportunity to pay income taxes in the future for investment interest and appreciation earned in the current year. Why is it important? Tax-deferred vehicles like IRAs and annuities produce earnings that are not taxed until withdrawn. This allows those earnings to compound,further adding to potential investment growth.

9. Risk/return trade-off

This concept holds that, in order to achieve a higher personal investment return, you must be willing to accept greater risk. Why is it important? When considering your investments, the goal is investing to get the greatest return for the level of risk you're willing to take, or to minimize the risk involved in trying for a given return.

10. Expense Ratio

It takes money to run a mutual fund. Just like any other business, salaries, marketing expenses, office expenses and other costs have to be paid before any cash can be invested. The percentage of mutual fund assets that go toward paying these things is called the expense ratio. Why is it important? If two funds have expense ratios of 0.50% and 1.5%, respectively, the latter has a much bigger hurdle to overcome before the fund is profitable. Over time, you would be shocked to see how big of a difference a percentage can make to your bottom line.

Unforced Errors

Thu, 18 Mar 2010 10:42:00 -0700

Maria Sharapova went into the semifinals of the LA Women's Tennis Championship in 2009 clearly favored to win. Yet, she was beaten by the 10th seeded Flavia Pennetta from Italy. Critics said it was her serve and the recent shoulder surgery. What I noticed during the match was that Sharapova had 61 unforced errors and Pennetta had 23. Unforced errors are mistakes that are supposedly not forced by your opponent. They are mistakes that could have been avoided. Pennetta won not because she played well, but because Sharapova played badly.

Financial types like to make an analogy between tennis and investing because of one essential similarity. Investing and tennis are what game theory calls zero-sum games. For every trade there is a winner and a loser. When you make a mistake it is someone else's gain. Consistency pays. Limiting your unforced errors is essential.

So what is an unforced error in investing? It's simply when one security blows up and drastically affects your overall performance. It's the chance that a Citigroup, Wachovia, Lehman Brothers, Enron or any failed or severely crippled business has a large position in your portfolio. Sooner or later most of them will fail. However, you won't know it has failed until it's too late. So the best course of action is to diversify to the point where it won't affect your portfolio. Get rid of potential unforced errors. The chart below shows different types of risk.

Beta measures volatility relative to the total market. A beta higher than the market's beta of 1 implies more volatility, and a beta lower than the market's implies less volatility.

The chance of having a real dog in your portfolio (Citigroup, Enron, etc.) is company risk. The chance of having too much exposure to banks is industry risk. These are both sources of unforced errors. The chance that the market goes down is market risk. You can diversify out of company and industry risk. You cannot diversify out of market risk. You only get paid for market risk. So why take risks that you don't need to?

Many investors like to speculate on individual stocks. That's fine as long as they recognize that to be speculation. A real investment, however, is more intelligent than that. By diversifying out company and industry risk, investors can minimize their unforced errors every time and tilt the odds back in their favor.

A Medigap Update

Mon, 08 Mar 2010 11:32:00 -0800

New changes in Medigap Insurance policies are taking effect. New policies may have lower premiums.

Lower premiums ahead? Back in 2005, Congress voted to make major changes to Medigap plans effective June 1, 2010. While these changes are a bother, they could indirectly result in reduced premiums for these policies. As the “modernized” Medigap plans sold after June 1 will have some differences from previous plans, insurers will be allowed to reset rates. Competition may drive premiums lower.

Please note: We’re talking about new Medigap policies that will be sold after June 1. If you already have a Medigap policy or buy one before June 1, these new changes won’t affect your plan, and you don’t need to replace your existing plan unless you feel the need. Just to clarify things further, Medigap plans are Medicare supplement plans, not Medicare Advantage plans.

The changes in brief. In June, three Medigap plans are going away, another is being modified, and two new plans are being introduced. Also, a new benefit will be included in all plans.

Plan E, Plan H, Plan I and Plan J will no longer be sold beginning June 1. (If you have one of these plans, you can continue to renew it as long as you keep paying premiums.)(source)
Two new lower-cost options will be available: Plan M and Plan N. Both come with some unique cost-sharing.
Plan M looks like Plan D with a couple of alterations. It covers just 50% of Medicare’s Part A deductible; 100% of Part B co-insurance is covered, plus skilled nursing facility care and emergency care in foreign countries.(source)
Plan N also resembles Plan D, but there are differences. Plan N will pay the full Part A deductible, but it asks you for co-payments of up to $20 for each covered healthcare provider office visit (including specialists) and up to $50 for each covered emergency room visit (you don’t pay that $50 if you end up being admitted to a hospital).(source)
Plans D and G will not come with preventative care and at-home recovery benefits after June 1, 2010. After June 1, Plan G coverage of Part B excess charges will be raised from 80% to 100%.(source)
A hospice care benefit will be added to basic benefits of Plans A-G.(source)

How easy would it be to switch to a lower-premium plan? If you’re going to celebrate your 65th birthday in the next few months, you can enroll in a Medicare supplement plan now and switch to a lower-premium plan in June, as you’ll be in the six-month open enrollment period. If you are older than 65, of course, you’ll have to go through underwriting to switch to a lower-premium plan – but if you’re healthy, making the switch to a cheaper plan may not be difficult at all.

Could you save on prescription drugs as well? If you find yourself hard-pressed to pay for prescription drugs, see if you qualify for Medicare’s new Extra Help program, which is worth an average of about $3,900 a year to Medicare recipients.(source)

As of January 1, 2010, Medicare no longer counts money contributed by others to pay your household expenses as income. It also no longer counts your life insurance policy as an income resource. This means that more people can qualify for prescription drug savings.

Basically, a married couple living together qualifies for Extra Help if it has less than $25,010 in resources (savings and investments) and less than $21,855 in annual income. For individuals, the limits are $12,510 in resources and $16,245 in annual income. However, you still may qualify even if you have earnings from work.(source)

Women and Money Series

Mon, 01 Mar 2010 13:20:00 -0800

Diane Blackwelder appeared on WCBD Channel 2 promoting an upcoming Money Empowerment Series through the Center for Women. Watch the Video to learn more. To enroll in the workshope visit the Center for Women website.

Are You Overlooking Tax Deductions?

Mon, 22 Feb 2010 10:11:00 -0800

Missing a tax deduction or credit you are entitled to can cost you. Here is a list of a few tax deductions you could easily overlook:

Property-tax deduction for non-itemizers: For tax year 2008 and 2009, you can boost your standard-deduction amount - by $500 for Single Filers and $1000 for married and filing a joint return - to account for property taxes paid on your residence. There is some extra paperwork involved - you will need to file a Schedule L.
Sales-tax deduction for new vehicles: If you purchased a new car, truck, motorcycle or motor home after February 16, 2009 and before the end of the year 2009, you may be able to deduct the sales tax paid (up to a maximum purchase price of $49,500). The deduction can be claimed as an itemized deduction or on Schedule L if you use the standard deduction. The deduction phases out for married couples with AGI's over $250,000 and single filers with AGI over $125,000.
The Hope Credit (known as the American Opportunity Credit for 2009 and 2010): The Hope Credit has traditionally been available only for the first 2 years of undergraduate school. For 2009, the credit has been expanded to include the first four years of college and it will rebate up to $2500 each qualifying student. Of course, there are income limitations to qualify. Click here for more information.
Child-care Credit: A credit is much better than a deduction; it reduces your tax bill dollar for dollar. If you are using a flexible spending account at work to reimburse your child-care bills, it is easy to overlook the child-care credit. Up to $5000 in expenses can be paid through a tax-favored account through an employer plan. If you pay for care for 2 more children, up to $6000 can qualify for the credit. So, if you expense the maximum ($5000) through a plan at work, but spend even more for work-related child care, you can claim the credit on as much as $1000 of additional expenses. That could cut your tax bill by at least $200.

5 Before 11

Wed, 17 Feb 2010 05:35:00 -0800

Here is a powerful productivity tip that is worth passing on: "5 Before 11". The idea is to focus your day early on completing or moving a few things forward that matter most. What are goals that you want to accomplish in the next 90 days? What do you need to complete in the next month? What are the high value activities you should be doing?

Before you quit work, write down 5 activities to focus on before 11 AM the next day. The act of writing them down will play in your subconscious mind overnight. Having a mid-morning deadline focuses your mind when you start your day. You will find that you have more momentum during the entire day with this simple tip.

2010 - Estate Tax is Unfixed

Mon, 08 Feb 2010 07:08:00 -0800

Congress in its wisdom, radically altered the estate tax at the dawning of the new millennium. Far into the future, the tax would be repealed in the year 2010 with zero estate taxes. Many believed congress would enact new legislation long before the 2010 repeal. But alas, the year has turned, and the law still stands. For the first time since 1916, Americans can contemplate dying without facing an estate tax. But the story doesn't end there; in 2011, the law will sunset to the 2001 estate tax levels.

What does this mean to you? 2010 offers great uncertainty about the future of estate taxes. Will Congress act and retroactively reinstate taxes for 2010? Will the exemption for 2011 reset to $1,000,000. The New York Times explores some of the ramifications of the present uncertainty: A Bizarre Year for the Estate Tax will Require Extra Planning.

Are You Spending A Bundle?

Tue, 02 Feb 2010 05:51:00 -0800

How does your spending stack up to your neighbors? Do you shell out more each month eating out? Do you give more to charity? A nifty website - Bundle.com - allows you to compare your spending with folks in your area and compare it to other cities across the country.

Being a person who finds this sort of thing interesting, naturally I had to check it out myself. I compared our area to a few random cities in the country and found we Charlestonians behave much like consumers in other cities. The one obvious stand out was the cost of insurance.

All Ages - Annual Household Income 100-125k
Monthly Spending per Category

	Charleston	Charlotte	Boston	Houston
Clothes	$206	$224	$306	$181
Eating Out	$301	$369	$488	$300
Groceries	$345	$350	$487	$312
Fuel	$198	$232	$123	$228
Insurance	$633	$338	$442	$418
Charity	$127	$104	$151	$95

How accurate the numbers are I can't say. Bundle.com is funded by Citi, Microsoft and Morningstar. Citi provides aggregated anonymous data from its credit card accounts. US Government data, from the Bureau of Labor Statistics, is also used.

Facebook Users Willingly Give Out Data

Wed, 06 Jan 2010 06:23:00 -0800

Don Reisinger is a technology columnist who has written about social media. In a recent blog, he discussed the willingness of Facebook users to disclose private information. His comments bear consideration, since once your information is on the web, it lasts forever:

"Facebook users are too willing to give out their personal information, security firm Sophos has found. According to Sophos' Australian team, which conducted a study to see how likely Facebook users were to offer up personal information, 41 to 46 percent of the 100 people Sophos contacted "blindly accepted" friend requests from two fake Facebook users created by the security firm. After becoming friends with Sophos, the security firm was able to access up to 89 percent of the users' full dates of birth, all of their e-mail addresses, where they went to school, and more. Half of all the users Sophos befriended displayed the town or suburb where they live. They even offered up information on family and friends.

"Younger users were "more liberal" with their workplace or school information than older users. "Both groups were very liberal with their e-mail addresses and with their birthdays," the security firm wrote in a blog post Sunday announcing the results. "This is worrying because these details make an excellent starting point for scammers and social engineers."

"The security firm added that "10 years ago, getting access to this sort of detail would probably have taken a con-artist or an identify thief several weeks, and have required the on-the-spot services of a private investigator. Sadly, these days, many social networkers are handing over their life story on a plate."

AARP The Magazine Contest Winners

Tue, 29 Dec 2009 07:41:00 -0800

Diane Blackwelder provided a financial plan for AARP The Magazine's Money Makeover contest winners, Peter and Carolyn Waters. Watch the video and read the full story at AARP Magazine online.