Interesting Book

I've been reading a book called entitled "Pound Foolish, Exposing the Dark Side of the Personal Finance Industry",by Helaine Olen, and thus far its been an entertaining read.  To date I've read about the interesting history of Suze Orman, Dave Ramsey, and others.  I'll share an excerpt from one of the next chapters:
"Here are two things you need to know about variable annuities.  First they are increasingly being marketed and sold to baby boomers who are more and more afraid of outliving their retirement savings.  Second, this is a product so complicated, so difficult to understand, with so many financial penalties should one decide it is not the right investment after all, that Suze Orman, a former annuities saleswoman herself, begs people to stay away from them."

While they may have their place in an investors portfolio, I would tend to agree with her.  They are vastly oversold with little attention paid to their long term costs.

If I were considering a variable annuity purchase, I would ask the following questions:
1) If I cash in my entire policy in 1,5,7, and 10 years, what would be the surrender charge I would pay?
2)  If I invest my money and the market goes down by 50%, and I surrender (cash in) my entire policy, what would I get?  My original investment or something less?
3) If I assume the prevailing investment return in the market will be 6% for the next 20 years, what would my policy be worth compared to a regular investment account that has lower fees. (For this one if they can't put in it numbers for you I would be very cautious- there expenses should include M&E expense and all the costs of any riders).

Return of the Investor

I recently posted on our facebook page in regard to this story, but I also noticed an article in Investment News. 

Before January of 2013, April of 2011 was the last month that investors, as a group, invested money into stock mutual funds, versus taking money out.  At the time of this article, investors had invested a net $23.6 Billion in stock funds as of 1/16.  January did finish as a net positive for fund inflows.  From March of 2009, until the end of 2012, investors took an astounding $400 Billion net from stock funds.  While some of this was probably due to economic reasons (unemployment was very high and something has to pay the bills), another reason was simply fear and uncertainty.  According to Investment News, the return on the S&P 500 over that same time was more than 100%.  Unfortunately investors that bailed on the market missed out on that return.

Value of an Advisor

Margaret Wittkopp brought up this article at our investor education class on Wednesday in Plymouth.  This is from Financial Advisor magazine, and was a study that tracked retirement plan participants going back from 1994 through 2008.  I like this study because it looks at the average investment results of different categories of investors that we commonly see, and how their actions have likely effected their bottom line. 

The yellow line is pool or group of participants/investors that had no plan.  They had no advisor, nor did they personally try to implement any plan.  This is the "head in the sand" group.  It is probably no surprise to anyone that this group performed the worst. At the end of this study in 2008, this group had far less money than any other.

The next line from the bottom is the self directed group.  This group was actively involved with planning their retirement, but they did it on their own.  The DIY crowd.  While I can only speculate, I am guessing the reasons for this is that they did not want to pay for the services of an advisor.  That mindset is pretty common actually.  With the wealth of financial "information" out there, many people feel that paying for the input of an advisor would be an unnecessary expense.

The green line represents people that worked with someone in the financial services industry, but not necessarily a comprehensive planner; like someone that may have sold you an annuity, or a few mutual funds.  You may even own an IRA through them.  Although they can provide financial products, they really aren't giving you tax advice or overall financial guidance.  This group trailed the self directed group until later in the 2000s.  Why?  My theory is this:  I am guessing many of the self directeds after 2007 and 2008 stopped contributing or pulled out of their plans in fear (remember the market in 08?).  By contrast, the group who at least had a casual advisor was able to stay the course.

The last and best performing group worked with comprehensive advisors, people who were not just there to sell them stuff, but who helped them look at the whole picture.  Sure, these people also probably paid the most in fees, but there is evidence to suggest that the fees they paid did earn results in the long run.  These investors also weren't afraid to engage their advisor frequently for advice and education. Don't ever be afraid to call your advisor or planner.  That is what we are here for.  There is a positive correlation between how much client/advisor interaction there is, and the ultimate client experience in the end.  Both the advisor, and the client have a responsibility in that regard.


 

Mutual Fund Final Four

I just thought I would update everyone on a little contest that I received in a piece of marketing material.  A certain mutual fund advertising company has created a final four mutual fund contest.  Just like the NCAA tournament, the field will be seeded with 64 competitors (funds), and after several weeks only one fund, the top performer, will remain.  (Unfortunately, we cannot pick the original 64).  Surely, the "prize" at the end of this for the winning fund is the fame of being the "March Madness" mutual fund winner.

Although certainly not a perfect experiment set up, I am going to fill out the bracket with the following way and see how things turn out in the end.  I will in all circumstances pick the less expensive over the more expensive fund.  The logic behind this is that if a fund manager is very "active" they will incur higher costs, which they will not be able to overcome.  I have no idea what the results will be, but it should be fun in any event.  Check back in a few weeks to see the results.

A Discussion About Gold

This morning we had an interesting discussion about gold in the office.  Gold has been a hot topic for a few years now so this may be a bit after the fact, but good to discuss none the less.

It is often said that gold has intrinsic value versus our "paper" money (and things denominated it in like stocks).  It is somehow implied that these assets will lose their value, but since gold is a hard asset it will retain it's value.  But, what are you buying when you buy stocks?  Is it just a piece of paper, or an electronic entry in some corporate database?  Or is it something more?  We'd argue that it's much more.  When you buy stock you are buying equity, or ownership, in the companies that produce the goods and services that make the world economy run.  And as owners of that, part of the profits come back to us, the owners of those firms.  The value of stock investments are determined by the market's view of how valueable and or profitable it is to own a slice of the world's economic markets.  When the economic outlook is doom and gloom, stock values fall, and when the outlook brightens, markets tend to rise.  Over the course of human history, the long term direction has been up.

In contrast, what do you get when you buy gold.  Well, you get ownership of a physical commmodity, or input (like sand, steel, cotton, oil, or any other commodity).  [Gold is unique in that it has been used for many many years as a form of money, but sea shells have also served that purpose].  Gold does not make a profit, and it's physical uses are limited.  (True, there is demand for gold to produce things like electronics and jewelry obviously).  In the direst of circumstances you can't eat it, drink it, or burn it for heat.  That being said, gold is often sought after in turbulent economic times as it's viewed as a safe haven.  Gold certainly has had a run in the past few years, but as long term investors it's important to take the long view.  It is not uncommon for commodities to have wild fluctuations in price.  Does anyone remember oil prices in the late 2000s?

The link below is a good comparision between stocks, bonds, and gold.
http://www.investorsfriend.com/asset_performance.htm

There have certainly been stretches of time when gold outperformed, just like there have been periods when bonds have done better than stocks. But if you take the long view there is a compelling case for stocks.  The only other fault I have with this article is that their only comparision to gold for stocks is "large company stocks". This is a very narrow look at stocks.  A truly diversified stock portfolio would have returned much more, and held stocks in the US, abroad, and of all sizes.  A further thing to note is that as a commodity gold can be just as, if not more, volatile than stocks.  We were just checking yahoo finance today, and an investment in GLD is down about 8%  from it's high in 2011, while stock investments in many categories are up double digits.

2012 Year in Review

Hello Everyone.  Well 2013 is finally here.  It may be a good opportunity for you as an investor to evaluate where you are, where you have been, and where you want to go in the future.

Despite all of the negativity in the air at the beginning of the year, 2012 for the most part was a good year for the markets.  You may be realizing this as you open your 4th quarter statements.  But if you are like most investors, as long as you see the positive returns, you are content to file the statement away and move on to other issues competing for your attention.  This brings me to an important concept in investing called benchmarking. 

I received an anonymous email a few weeks ago asking what I thought a 40lk should have returned this year.  Immediately I knew this was a case where the investor had no idea what returns they should expect, given the funds they owned.  This is truely a sad sceneario, as you can imagine this person, if they have an advisor, has no way to hold the advisor accountable.  Imagine buying a car, and having a breakdown only 3000 miles after purchase.  Most drivers know that that is unacceptable, but if you didn't have a standard of comparison, how would you know?  Imagine how many lemons you would buy and be completely blissful about it if you did not know the standard of quality for cars sold by dealers?

In short, every fund in the fund universe has a "benchmark".  This benchmark is used as a standard of comparison.  It is generally believed that a fund should perform similiar to it's benchmark (or sometimes called an index).  For example, many US large cap stock funds have the S&P 500 as their index or benchmark.  The S&P 500 tracks the performance of 500 of the largest US firms in various industries.  It is generally thought to be a good composite representation of the market for US large stocks.  Mutual funds that trade and own these stocks should perform up to the benchmark, but unfortunately that is not the case routinely.  That my friends is a topic for another blog post.  If you are interested in what your funds' benchmarks are, a great website to visit is morningstar.com.

Jeremy Burri
Veritas Financial

 

Medicare Open Enrollment Information

I know, we "Baby Boomers" will never get old...but we will enroll in Medicare! 

Following up from the last post, here is some information that may be helpful during Medicare's annual "Open Enrollment" (the AEP) for Medicare Advantage (Part C) and prescription (Part D) plans.

During the AEP, Medicare beneficiaries can change how they receive health insurance coverage and add, change, or drop prescription drug coverage.  They can make as many changes as they want during this period--with changes taking effect on January 1, 2013.

It is important to note that if you have a traditional Medicare Supplement Insurance policy, it is guaranteed renewable.  That means that no action needs to be taken to continue your coverage other than paying premiums on time.

From October 15 -- December 7, 2012, Medicare beneficiaries can make any of the following changes:

• Change from a Medicare Advantage plan back to Original Medicare.
• Change from a Medicare Advantage plan back to Original Medicare and a Medicare Supplement policy (health history questions may be asked, and some plans may not be available). 
• Change from Original Medicare to a Medicare Advantage Plan.
• Switch from a Medicare Advantage plan to a different Medicare Advantage plan.
• Switch from a Medicare Advantage plan that does not offer prescription drug coverage to a plan that does offer prescription coverage.
• Switch from a Medicare Advantage plan that does offer drug coverage to one that does not.
• Join a stand-alone prescription drug plan.
• Switch from one prescription plan to another.
• Drop prescription coverage altogether.

Another important period to keep in mind is the Medicare Advantage Disenrollment Period from January 1 -- February 14, 2013.  During this time, Medicare benenficiaries can switch from a Medicare Advantage plan to Original Medicare.  Regardless of whether the Advantage plan had drug coverage, beneficiaries also have the option to join a stand-alone prescription drug plan.  Changes made during this period are effective the first day of the following month.

Learning About Medicare

Medicare's Annual Open Enrollment begins October 15 and ends December 7.

The annual open enrollment is an opportunity for Medicare beneficiaries to make changes in their insurance coverage.  It is also a good time for beneficiaries (and perhaps their family members) to learn or be reminded about the way Medicare works.

The Medicare system is divided into four different parts. Each of these parts has a host of options available within them. These four parts are called Medicare Part A, Part B, Part C, and Part D. Here is an overview of the differences between them:

Medicare Part A
Part A is also known as Hospital Insurance because its coverage reduces participant expenses for their hospital stays. Part A covers many costs when a participant is admitted for inpatient care. It also covers a portion of skilled nursing facility, hospice, and even home health care.  However, it is NOT designed for long-term care.  Additionally, participants will be required to pay for coinsurance, deductibles, and some uncovered expenses related to their stays (also known as coverage gaps). These uncovered expenses, or "gaps," may be covered by Medicare Supplement plans (sometimes called Medigap plans). 

Medicare Part B

Part B is also known as the Medical Insurance portion of the Medicare plan because it covers many outpatient services provided by a healthcare provider. Part B also provides coverage for some  services that help participants to stay healthy and decrease the progression of any illnesses.

Part B is also very affordable; the annual premium for Part B was only $99.90 in 2012. However, Part B only pays 80 percent of fees for approved charges, requiring participants to pay for the rest of the cost.  Parts A and B are togeher often called Original Medicare.

Medicare Part C

Part C provides "Advantage Plans." These are typically PPO or HMO plans. Part C plans are administered by private insurance companies that are approved by Medicare. Participants receive their healthcare coverage directly from those private companies instead of from Original Medicare. Generally, Medicare Part C includes Part A and Part B coverage as well as a prescription drug coverage plan.  Some Part C plans do not contain drug coverage.  Part C plans often include benefits not covered by Medicare, such as some vision, dental, or hearing services.  Other benefits might include "Silver Sneakers" or similar programs that provide membership in a fitness center.  These kinds of benefits vary widely between plans.

Medicare Part D

Part D is the program that helps to cover the cost of prescription drugs. Benefits can be included in an Advantage Plan, or they can be purchased as a stand-alone plan for those who have Original Medicare or Medicare and a Supplement plan.

Many Medicare participants find it helpful to speak with an experienced health insurance advisor for more information about their options, and this can also help to ensure that participants get the best healthcare plans for their needs at prices that are right for their budgets.

As an independent agent, I can offer you a choice of several popular plans, depending on your individual needs, preferences or situation.  I also offer periodic educational classes to help Medicare beneficiaries (and those who are about to be) understand how the Medicare program works.  This can also be helpful for those who are assisting parents with the sometimes complicated insurance decisions that arise.

If you are in Sheboygan, Fond du Lac, Winnebago, Manitowoc, Calumet or other nearby counties, you are welcome to attend one of our "Medicare and You" educational classes.  The next scheduled classes are November 1st and 28th at 6 PM and Noberber 13th at 11:30 AM and 6:00 PM.  Classes are at 506 E. Mill St, Plymouth, Wisconsin.  Additional classes may be scheduled elsewhere during the annual open enrollment, so contact me if you would like a complete list.

Give me a call at 920-893-5262 if you would like make an appointment to discuss Medicare-related insurance or if you would like to attend one of our educational classes.

Dorcas George
Insurance Advisor/Coach


Neither Dorcas George nor Veritas Financial are affiliated with the Federal Medicare Program. This is a solicitation of insurance. 


Our "Medicare and You" class is an education event and is only for educational purposes. No plan specific benefits or details will be shared.

The Event in Pictures

Thank you everyone who came out.

Your Team of Veritas Experts with Mark Matson taking on the Bullies of Wall Street

 Mark met one-on-one with people before the event started







We had a packed house of investors eager to learn

 

 Margaret introduced our guest speaker Mark Matson



The end of the evening was topped off with prize giveaways.









Matson Dinner

WOW!! What a great night!



Thursday, August 2nd, Mark Matson author of the new book and PBS special MAIN STREET MONEY joined us in Elkhart Lake, at the Osthoff Resort.  His message was thought provoking, informative, and optimistic.

Here is what people are saying:

“Great information and a fantastic dinner!”
                         – HR Head at Manufacturing Firm

“Just want to say a quick thank you for the lovely evening last night.  You all did a great job! The meal was excellent and you did such a nice job keeping things moving.”
                         – Small Business Owner

“Wanted to personally thank you for an enjoyable and thought provoking evening.  Yes, your list of challenging questions highlighted some holes in our personal planning.”
                         – CEO Manufacturing Firm

Did you miss our dinner?  How can you hear the optimistic and thought provoking message Mark Matson brought to us?  Come to one of our classes!  Call 920-254-3218 for more information.