 |
May 2008 |
Capital Retirement Strategies, Inc.
Specializing in retirement plans
and personal investment management
In This Issue With Memorial Day now in the rear view mirror, summer is un-officially here in New England! With summer comes thoughts of clambakes, beaches, boating and, of course, baseball. The Red Sox are again off to a great start as they look to defend their World Series championship for the 2nd time in four years. And as an added bonus for the New England sports fan, the Celtics are still playing and shooting for their first NBA championship since Larry Bird, Kevin McHale and Robert Parish brought home the trophy in 1986. Bostonians are often thought of as sports fanatics and, in honor of our love affair with sports, our first article this month is entitled, "What Sports Can Teach Us About Investing." Our second article addresses some common misconceptions, as well as a few helpful hints, about long term care insurance. As the costs of long term care have risen, getting insurance to protect against these risks has become increasingly important. I have begun working with Donna Carlson of the Boston Partners Financial Group who is a true expert in the field of long term care insurance. She has been kind enough to write the article entitled, "Incorporating Long Term Care Insurance into Your Financial Plan." I hope you take the time to read this story and pass it along to loved ones who may be concerned about this growing financial need. For my clients, I am pleased to announce a brand new online portfolio reporting system. Please read all about it below. If you read something here you like, please consider forwarding my newsletter to someone who may also find it of value. Thanks for reading! Best regards,
What Sports Can Teach Us About Investing Sports clichés and strategies seem to have infiltrated nearly every aspect of modern life. If someone seems distracted, we might say they’re “out in left field.” If a business deal seems like a sure thing, it’s a “slam dunk.” Every day, we’re thrown a curve or given a ballpark figure or asked to cover all our bases. Sometimes we take the ball and run with it, and other days we fumble. Athletes and sports fans aren’t all necessarily good at financial matters, but there’s no doubt we can all learn a lot about investing from sports. Consistency Counts- While we hear about the importance of consistency in many sports, I think nothing illustrates it better than this interesting golf story. Perhaps the most famous of all golf tournaments is the Masters, which has been played every year since 1934. Each spring, many of the world’s best golfers vie for the coveted green jacket, awarded to the winner of the tournament. Since 1934, there have been 18 holes-in-one recorded during the four day tournament. Yet of the 18 golfers who shot a hole-in-one, none of them went on to win the Masters that year. You see, to win the Masters, or any golf tournament, it takes more than one great shot, or even one or two good days. It takes consistency for all 72 holes over four days. I often meet investors who are always shooting for the figurative hole-in-one with their investments. Holes-in-one, in golf as well as with investments, are extremely rare. Several of the world’s greatest golfers have never shot a hole-in-one, while many a weekend duffer has scored a lucky hole-in-one. The point is that to achieve investment success, we don’t even need the big short-term winners or the “holes-in-one.” In golf terms, we need a few birdies along the way as well as staying away from the bogeys and the sand traps. With our portfolios, we need to avoid the big losses and keep volatility in check through diversification. Just as Tiger Woods will sometimes hit the ball in the water or score a double bogey, even the most skilled investor will make mistakes. The true champion will learn from his mistakes and move on. Defense Wins Championships (and Prosperous Retirements!)- Even the casual football fan has heard the cliché, “Defense wins championships.” There’s no question that good defense is not nearly as much fun to watch as good offense. High scoring games are good for TV ratings and make stars out of quarterbacks like Dan Marino and Peyton Manning. But even Marino and Manning can’t alone propel a team to a Super Bowl victory. Dan Marino is arguably one of the best 5 or 6 quarterbacks in NFL history and his Miami Dolphin teams put up some impressive scoring statistics during his career, yet he never won the Super Bowl. Peyton Manning seemed destined for the same type of career as Marino until his Indianapolis Colts finally beefed up their defense and won the big game two years ago. In investing, you could make the case that growth stocks and foreign emerging markets stocks are the offensive players in your portfolio. When things are going well, they can put up some very impressive returns. Unfortunately, when markets turn, the results can be ugly. Your portfolio’s defense is comprised of the boring stuff- bonds, money markets and value-oriented dividend paying stocks. They aren’t that much fun to watch- in fact they generally just hang around or inch up a little bit at a time. Of course, when the stock markets slump, they become really popular. All of a sudden the investments that were chugging along earning 3, 4 or 5% a year look pretty good now compared to your aggressive growth fund that just lost 19% of its value in 9 months. Bonds and blue chips aren’t sexy and they aren’t as much fun to talk about at cocktail parties, but they can often make the difference between an uncertain retirement and a comfortable one. It’s a Marathon, Not a Sprint- This cliché has been used to describe many things including life itself. Needless to say it can also be used as an analogy for patience in investing. To complete a 26-mile foot race requires patience, pacing yourself and a spirit that is competitive but not over-reactive. A true marathon champion understands that he doesn’t need to be the quickest off the line or in the lead after a few miles to finish first. He must continue at his own pace regardless of how the other runners are running. If he sees a competitor pass him early in the race, he must have the discipline to stay back and conserve his energy until he needs it later on the course. His mind is focused only on the end result- the finish line. An investor must exhibit much of the same patience and discipline as the marathon runner. Over the course of a person’s working years, there will be many bull markets, many bear markets, many scandals, innovations, successes and tragedies. One of the worst mistakes an investor can make is overreacting to short-term market conditions. It is important to understand that, in the short-term, financial markets are primarily driven by fear and greed. Over the long-term, markets are driven by facts, logic and other factors that can be analyzed and understood. While investors must be aware of short-term market conditions, they should keep their eye on the prize- their retirement years.
Incorporating Long Term Care Insurance into Your Financial Plan By Donna R. Carlson, CLTC, Boston Partners Financial Group How would you pay for long term care services such as a visiting nurse, assisted living, therapy or a personal care aid if you needed them? Could you easily pull $200,000 from your retirement nest egg to pay for three-years in a nursing home? According to the Congressional Budget Office, “Financing Long-Term Care for the Elderly,” April 2004, one year in a nursing home or 24-hour home care can cost more than $66,000 today, and that cost continues to rise. Long term care (LTC) insurance is the one financial tool that can help you prepare for these costs in the future. With this protection, you will be able to maintain more independence should you need long term care. You may be able to stay in your home longer, and you’ll have more choices about your long term care services and providers in the future. That’s why it is critical to make a long term care insurance policy part of your overall financial strategy. While most consumers know something about long term care and can access information about the topic, several misconceptions surrounding long term care insurance still persist. Additionally, there are a number of tips you should think about when buying the product. Let’s look at two of the most common fallacies about long term care insurance and two helpful tips to consider when putting together your long term care plan. Misconception Number One: Other insurance and government programs will cover long term care costs. Long term care usually involves non-medical assistance with basic daily activities like dressing, bathing or using the toilet. In fact, many long term care services that help with these tasks are not typically covered by other kinds of insurance, including health and disability insurance. Only long term care insurance policies help cover the day-to-day assistance you need when you have a chronic illness, disability or cognitive impairment and need help with activities of daily living such as eating, bathing, or toileting. As for government programs, Medicare pays only for short periods of care and Medicaid covers only the very poor -- those whose assets are at or below state-required levels. In addition, Medicaid will not pay for care received at home, in the community, in an adult day care, or at assisted-care living facilities. It does cover care received in nursing home, but a new law passed in February 2006 makes it harder to qualify for government-paid nursing home care. Misconception Number Two: People think they can’t afford long term care insurance. In reality, coverage is more reasonably priced than they think and can certainly fit within a budget. For example, using data from the June 2004 AHIP LTC Insurance Market Surveys, the average premiums for top long term care insurance sellers in 2002 ranged from a base premium of $422 a year for a 40-year-old to $1,337 a year for a 65-year-old. If you consider coverage that also includes compounded inflation protection (in this case 5%), the premium was $890 a year for the 40-year-old and $2,346 a year for the 65-year-old. Remember, the younger and healthier you are when you apply, the lower your premiums will be. So if you plan to buy long term care insurance, it makes sense to buy it sooner than later. The key is to develop a long term care insurance plan that fits your budget and your needs. Helpful Tips: Buy Inflation Protection When you are ready to buy long term care insurance, it’s very important to have inflation protection, especially if you are buying a policy in your 40s, 50s, or 60s. After all, if you buy a specified daily or monthly benefit based on today’s provider costs, that benefit is not going to keep up with rising costs over the 10, 20 or even 30 years that may pass before you need the benefits --- unless you have inflation protection. Most long term care insurance policies have different kinds of inflation protection options, and some can be very expensive. The key is to select the option that gives you an appropriate level of protection at the best price. Policies may also offer the ability to purchase additional coverage over time without medical screening which may be another way to allow your policy to keep up with inflation. Again, this strategy could be costly. The good news is that one of the latest options available in some policies is automatic inflation coverage tied to the Consumer Price Index (CPI). The CPI is the tool most often used to measure the rate of inflation in the U.S. and is widely recognized by the public. This index, which has been on the rise for over 50 years, tracks the prices of a basket of goods and services and includes items such as medical care and housing. In fact, U.S. social security benefits and many pension plan benefits are linked to the CPI. Automatic inflation coverage tied to the CPI works like this: Every year on the policy anniversary, your long term care insurance coverage amounts are automatically adjusted according to the CPI. When the CPI increases – even during periods of the highest inflation like in the 1970’s – your benefits increase accordingly, but your premium remains the same. In the unlikely event that the CPI decreases – which last happened in 1955 – your benefit amount will not be reduced. Avoid Purchasing More Insurance Than You Need The first step is to research the costs of home health care, assisted living facilities2, and nursing homes in your area. Don’t rely on national average numbers because costs can vary greatly from city to city and region to region. For example, nursing home prices in Birmingham, AL are cheaper than they are in Manhattan, NY. Once you know the costs, you’ll have a better understanding of the daily benefit you need to cover those expenses. In addition, be sure to include in your calculations the estimated increase in cost based on the inflation rate or CPI over 10, 20 or 30 years. Remember that a nursing home is probably the worse-case scenario, and that most people receive care at home or in assisted living facilities2 which tend to be less costly. In Conclusion So is planning for long term care insurance worth it? Few people regret purchasing car or home insurance when an accident takes place. The coverage earned is far greater than the annual premiums paid, especially when you consider the alternative: paying for a new car or a new home out-of-pocket. The same is true of long term care insurance. The benefits paid out under a LTC insurance policy for one year alone can often exceed the cumulative premiums you pay into the policy over many years. More important, long term care insurance helps to protect your retirement savings and allows you more independence and choice in how and where you receive your long term care services when you need them. Donna Carlson is a licensed Life & Health Insurance Agent, and is certified in long term care by the Corporation for Long-Term Care Certification, Inc. (CLTCC). She has worked as an advocate for seniors, both professionally and on a volunteer basis, for over 15 years. Donna sells long term care insurance for the purpose of protecting families and their retirement income from the potential negative consequences of needing long term care. Comments or questions can be directed to her at 978-689-6906 or by email at dcarlson@jhnetwork.com.
The long term care insurance policy describes coverages under the policy, exclusions and limitations, what you must do to keep your policy in force, and what would cause your policy to be discontinued. Please contact the licensed agent or John Hancock for more information, costs, and complete details on coverage. Long term care insurance is underwritten by John Hancock Life Insurance Company, Boston, MA 02117. Policy Series: LTC-06 In Idaho: LTC-06ID In Oklahoma: LTC-06OK In North Carolina: LTC-06NC LTC-03, BSC-03, LTC-02, BSC-02
New Online Portfolio Reporting Available I am pleased to announce the availability of a new online portfolio reporting system. With this state-of-the-art financial tool, you will now be able to see a complete view of your holdings and transactions, along with performance reporting 24 hours a day from the comfort of your home. This will not replace the online access that you already have through Pershing’s NetExchange Client website or any websites provided by individual fund companies such as American Funds or Oppenheimer. Instead, this site will provide a consolidated view of all of your accounts, whether they are held in your brokerage account or direct with another investment company. Best of all, this great service is being made available at no additional cost to you, as a part of our ongoing commitment to providing you with the best in financial planning services. There is no special software to install or learn, and you will be able to access it from any computer, anywhere in the world! No more waiting for the next calendar quarter to view the performance of your holdings -- you will be able to see it whenever you want, from the convenience of your home or office. We are very excited to offer this incredibly useful tool to you, and look forward to being able to provide you with an enhanced level of service as a result of it. If you would like to get online access, please send me an email and I will respond with a link to the website as well as a temporary password.
If you've recently had something great happen in your life or in your career, I'd love to recognize you for it! Send an email to dave@capretirement.com and I'll try to get it in an upcoming issue of Capital Concepts.
Securities offered through Investors Capital Corporation- Member FINRA SIPC |
