hello clients, prospective clients, and business alliance members. focusing more on emotional health development definitely pays off and warrants coordinated attention. this practice fits into a client-centric, concierge health + financial wellness program.
rather than focusing exclusively on money awards, corporate human resource departments must permit scheduling fluidity and facilitate user-definition. in layman's terms, the statement means ease up on employee time control. extra monetary awards work generally well, but what about taking a traditional workday off consistently to experience quality family time?
nearly every friday, blaine, our 21 month old son, and i enjoy our time together. we have a late-start morning feeling the warm sun pour through the window. timed-set coffee from last night fills the kitchen air, as we prepare our morning.
with a quick diaper change, we head off to his playroom, usually a milk cup in hand, and just hang out. he will tell me when he wants some breakfast, or sometimes, he just has to sit down at the table. we enjoy our healthiest breakfast all week with oatmeal, flax, fruit, laughter, and sunshine.
we may leave for the office or take turns saying hello around the partition between the solarium and his playroom. a business-funded desktop computer sits outside his playroom, which often doubles up as his multimedia toy. integrating business tools into the work and home environment pays dividends through flexibility but requires discipline knowing when to turn it off.
when we pull into my office's parking garage, his amazement follows the light rays as they dim out with the closing garage door. he loves walking on his own and insists that he walk to the door. his insistence needs a minor push when we get to the elevator, but he enjoys the gravitational push.
watching my son conquer his fear with the elevator over a time lapse makes me feel confident. we both took on something together difficult, but when it came down to deliver, he did it alone. his self-reliance and mental fortitude training will affect his future lifestyle as much as a trust fund, if not considerably more.
eventually, we head back to the house and get some lunch before nap time. my wife and i have a shift change sometime after nap time. time to go back to the office and close down.
feeding his global perspective, we often talk about his peers in palestine, lebanon, syria, and subsaharan africa. without detailing violence committed against his peers, we talk about each child as an equal with a name and loving family. foreign affairs take new meaning when evaluated through your child's eyes.
create enjoyable quality family time! you often do not get a second chance...
Thursday, March 15, 2012
Tuesday, March 6, 2012
a truly global client experience
hello clients, prospective clients, and business alliance members. the mobile entrepreneur concept combined with a social entrepreneur agenda embodies our commercial future; moreover, when you place people and planet over profits, you create a sustainable winning combination.
with mobility and a social conscience, you can blueprint a truly global client experience. wise business development strategies do not build a business model and expect clients to come knocking on the door. the tail (provider) ultimately does not wag the dog (client).
your clients should define your business model and provide you with constant feedback about their direction. you must match the needs and desires to ensure that the requests make prudent business sense. finding a niche and filling it may sound trite, but following the maxim works and requires discipline with a client-centric focus.
for instance, clients outside my independent practice's footprint desire a richer concierge experience beyond the telephone. adding visual context within an audio experience creates the sensation that you can move without moving. although the concept harks back to "dune," you do not need spice to power your intercontinental journey.
you just need skype or other teleconferencing technology that provides facial expressions with the spoken word. rich teleconferencing technology permits a social entrepreneur the ability to call the shots where to play and how to create value; moreover, other software as a solution applications level the competitive playing field even further, unlocking additional client-centric value.
when you meet in person, which will invariably arise, you can keep a studio apartment rental with shared work and living spaces. our future studio apartments will gravitate towards technology and energy themed regions such as northern new mexico, denver, and austin. these areas would serve as a launching point into the global arena.
thinking globally but acting locally, my clients have specific concerns about outliving income and paying for uninsured healthcare expenses; moreover, as the global middle class rises in emerging markets, the two themes will resonate across many different civilizations, not just western society.
creating a truly global client experience engineers geographic omnipresence and sustainable value. you can count on my professional judgment, my resource access, and my practical counsel.
with mobility and a social conscience, you can blueprint a truly global client experience. wise business development strategies do not build a business model and expect clients to come knocking on the door. the tail (provider) ultimately does not wag the dog (client).
your clients should define your business model and provide you with constant feedback about their direction. you must match the needs and desires to ensure that the requests make prudent business sense. finding a niche and filling it may sound trite, but following the maxim works and requires discipline with a client-centric focus.
for instance, clients outside my independent practice's footprint desire a richer concierge experience beyond the telephone. adding visual context within an audio experience creates the sensation that you can move without moving. although the concept harks back to "dune," you do not need spice to power your intercontinental journey.
you just need skype or other teleconferencing technology that provides facial expressions with the spoken word. rich teleconferencing technology permits a social entrepreneur the ability to call the shots where to play and how to create value; moreover, other software as a solution applications level the competitive playing field even further, unlocking additional client-centric value.
when you meet in person, which will invariably arise, you can keep a studio apartment rental with shared work and living spaces. our future studio apartments will gravitate towards technology and energy themed regions such as northern new mexico, denver, and austin. these areas would serve as a launching point into the global arena.
thinking globally but acting locally, my clients have specific concerns about outliving income and paying for uninsured healthcare expenses; moreover, as the global middle class rises in emerging markets, the two themes will resonate across many different civilizations, not just western society.
creating a truly global client experience engineers geographic omnipresence and sustainable value. you can count on my professional judgment, my resource access, and my practical counsel.
Friday, February 24, 2012
financial wellness drives health wellness
hello clients, prospective clients, and business alliance members. our employer-based production society must refocus its priorities when evaluating employee productivity fitness. current knowledge focuses its efforts towards health wellness rather than balancing towards financial wellness.
rather than buy a gym membership, an employer could maximize benefits' dollars towards a client-centric, concierge financial wellness program. a monthly plan could purchase time hours with minimal upfront outlay and negotiated hours; or, the employer and the employee could arrange voluntary benefits with a 360 degree merit-based bonus benefit investment.
a solid financial wellness program would require one-on-one dedicated financial counseling. this discipline requires philosophical balance between assets and liabilities, avoiding excessive efforts at each spectrum end. chasing yield while managing net working capital losses appears foolhardy knowing that you may need the funds at the worst time.
most logically from anecdotal experience, you could reasonably argue that financial wellness drives health wellness. financially stressed people generally divorce each other, lose jobs, families, children, businesses, and yes, the ultimate price, their health.
life sometimes does not appear fair, yes; however, choosing to maintain financial discipline even when unhappy requires mental fortitude. the fortitude takes practice, help, and living within the moment inside your strategic intent.
with that in mind, how can you approach the financial wellness challenge? short of gorging yourself on the talking heads' soup, you should consider hiring someone with trust and confidence. leisure seekers have always known that hiring the right people can positively impact your lifestyle and possibly extend life.
you can couple the strategic financial wellness program with meditation, clean food and water, sunshine, smiles, oxytocin, and moderate exercise. annual preventative medical checkups should coincide with a mini-financial check within a comfortable rotation system. wise human capital professionals know that the financial and health wellness complement each other.
employers must also maintain flexibility, sell more employee equity, and provide more transparency in its decision making process. our collective unconscious human capital potential grows infinitely with authentic and deliberate care.
...you can count on my professional judgment, my resource access, and my practical counsel.
rather than buy a gym membership, an employer could maximize benefits' dollars towards a client-centric, concierge financial wellness program. a monthly plan could purchase time hours with minimal upfront outlay and negotiated hours; or, the employer and the employee could arrange voluntary benefits with a 360 degree merit-based bonus benefit investment.
a solid financial wellness program would require one-on-one dedicated financial counseling. this discipline requires philosophical balance between assets and liabilities, avoiding excessive efforts at each spectrum end. chasing yield while managing net working capital losses appears foolhardy knowing that you may need the funds at the worst time.
most logically from anecdotal experience, you could reasonably argue that financial wellness drives health wellness. financially stressed people generally divorce each other, lose jobs, families, children, businesses, and yes, the ultimate price, their health.
life sometimes does not appear fair, yes; however, choosing to maintain financial discipline even when unhappy requires mental fortitude. the fortitude takes practice, help, and living within the moment inside your strategic intent.
with that in mind, how can you approach the financial wellness challenge? short of gorging yourself on the talking heads' soup, you should consider hiring someone with trust and confidence. leisure seekers have always known that hiring the right people can positively impact your lifestyle and possibly extend life.
you can couple the strategic financial wellness program with meditation, clean food and water, sunshine, smiles, oxytocin, and moderate exercise. annual preventative medical checkups should coincide with a mini-financial check within a comfortable rotation system. wise human capital professionals know that the financial and health wellness complement each other.
employers must also maintain flexibility, sell more employee equity, and provide more transparency in its decision making process. our collective unconscious human capital potential grows infinitely with authentic and deliberate care.
...you can count on my professional judgment, my resource access, and my practical counsel.
Tuesday, February 14, 2012
windfall assets - the sandwich generation's opportunity
hello clients, prospective clients, and business alliance members. you should avoid counting on living gifts and inherited assets from your family as a general rule. the sandwich generation, on the other hand, may receive more than $8 trillion, at least for three quarters of them.
boston college and metlife conducted a recent inquiry concerning intergenerational wealth transfer and the sandwich generation. numerical figures come from their published report [drucker, peter f., eschtruth, andrew, karamcheva, zhenya, munnell, alicia h., and anthony webb. "the metlife study of inheritance and wealth transfer to baby boomers." center for retirement research at boston college, 2010. web. dec 2010.].
living gifts and inherited assets represent a fantastic opportunity! the fortunate sandwich generation members who have inheritable assets may receive a median $64,000 in living gifts and inherited assets. which begs the question, what do you do with such a windfall?
knowing that this opportunity does not come too often, you should seek balance and retain professional financial counsel. strategic efforts should focus on enjoying the windfall, satisfying legacy needs, paying off consumption debt, and building pension assets.
let us discuss the prescribed ideas in order:
a) spending the money on enjoyment
as a consumption-driven western society, we must assume that you have a socialized need to consume the money on yourself today; however, you should understand your overall financial wellness in the windfall's absence. you could spend around 5% to 10% on yourself if you have manageable debt and a solid pension plan.
if you have minimal debt and a fantastic pension plan, you could arguably bump the spending amount beyond 10% to 25%. my professional opinion highly cautions exceeding a 25% threshold because overspending could erode intergenerational wealth transfer opportunities.
if your overall financial wellness requires significant care, you should cap off spending at around 5% of your windfall. spending $3,200 on yourself in the median case should satiate your spending urges, while providing opportunity for the future. you can always spend more but remember that you may squander a once in a lifetime opportunity.
no hard and fast rule exists, but it remains critical to reward yourself carefully.
b) satisfying legacy needs
most clients cherish grandparent and charitable gifting opportunities. these tactics may require consulting professional tax counsel, which my clients and i routinely seek out together; most importantly, you should consider your overall financial wellness as well.
effective grandparent gifting strategies generally involve purchasing financial instruments towards education and future life prospects. my clients favor paid-up permanent life insurance policies since grandchildren can capitalize on future coverage and cash value. this tactic does not operate in isolation and has its pros and cons like any other financial instrument.
imagine your grandchildren earning a doctorate, fighting hunger and disease, launching a technology startup, or purchasing a vintage sloop. the greatest generation's gifts can fund those life prospects and dreams; however, you must navigate the funds towards your grandchildren and away from overspending or rapacious governmental tax treasuries.
charitable gifting remains a fantastic option for many sandwich generation members. you should clearly outline your values and provide funding where you feel best suited to your value system. this tactic may also afford potential tax immunization with proper tax consultative advice.
your charitable contributions could also land you with future extracurricular prospects. imagine funding a nonprofit organization and having leadership opportunities down the road as an engaged volunteer. the boundaries remain limitless, but as always, seek outside tax counsel when in doubt.
c) paying off consumption debt
paying off consumption debt does not uniformly apply to everyone; however, our dialogue should not forget this topic. you should allocate around 25% to 50% of your windfall towards this tactic with an extremely weak financial wellness profile.
with a moderate to strong financial wellness profile, you may not necessarily require much attention in this area. you should not exclusively or overly focus on this topic, to the chagrin of many financial charlatan talking heads; most importantly, no hard or fast rules exists in this area, and in doubt, you should seek professional financial consultation.
d) building pension assets
the landmark study clearly emphasized that the sandwich generation needs more preparation towards retirement readiness, even with a sizable windfall. you should unwaveringly address avoiding outliving income and cover uninsured healthcare expenses. addressing retirement readiness will maintain your future standard of living.
insurance-based solutions such as extended care insurance in combination with an annuity or a life insurance policy may fortify your pension. as an example, you can reposition your windfall and create solid extended care coverage while retaining coverage ownership. most single premium extended care policies generally require a $50,000 minimum deposit with coverage based on age, health, and insurance structure.
a single premium repositioning tactic provides protection against outliving your income and insures against uninsured healthcare expenses. if you do choose other investment options, you should carefully weigh a financial instruments ability to manage those two risks. investing into volatile assets may not fit the bill and could compromise a holistic asset / liability management approach.
maximizing your windfall requires professional care and careful consideration with your beneficiaries. you deserve nothing less! it also demands restraint on your part.
although mendez & co. financial counselors does not provide tax advice, my clients hire me to seek out professional tax advice. this dialogue also does not serve as financial counsel tailored to your unique situation. it merely serves as a dialogue guidepost and thought stimulation.
you can count on my professional judgment, my resource access, and my practical counsel.
blake mendez
boston college and metlife conducted a recent inquiry concerning intergenerational wealth transfer and the sandwich generation. numerical figures come from their published report [drucker, peter f., eschtruth, andrew, karamcheva, zhenya, munnell, alicia h., and anthony webb. "the metlife study of inheritance and wealth transfer to baby boomers." center for retirement research at boston college, 2010. web. dec 2010.].
living gifts and inherited assets represent a fantastic opportunity! the fortunate sandwich generation members who have inheritable assets may receive a median $64,000 in living gifts and inherited assets. which begs the question, what do you do with such a windfall?
knowing that this opportunity does not come too often, you should seek balance and retain professional financial counsel. strategic efforts should focus on enjoying the windfall, satisfying legacy needs, paying off consumption debt, and building pension assets.
let us discuss the prescribed ideas in order:
a) spending the money on enjoyment
as a consumption-driven western society, we must assume that you have a socialized need to consume the money on yourself today; however, you should understand your overall financial wellness in the windfall's absence. you could spend around 5% to 10% on yourself if you have manageable debt and a solid pension plan.
if you have minimal debt and a fantastic pension plan, you could arguably bump the spending amount beyond 10% to 25%. my professional opinion highly cautions exceeding a 25% threshold because overspending could erode intergenerational wealth transfer opportunities.
if your overall financial wellness requires significant care, you should cap off spending at around 5% of your windfall. spending $3,200 on yourself in the median case should satiate your spending urges, while providing opportunity for the future. you can always spend more but remember that you may squander a once in a lifetime opportunity.
no hard and fast rule exists, but it remains critical to reward yourself carefully.
b) satisfying legacy needs
most clients cherish grandparent and charitable gifting opportunities. these tactics may require consulting professional tax counsel, which my clients and i routinely seek out together; most importantly, you should consider your overall financial wellness as well.
effective grandparent gifting strategies generally involve purchasing financial instruments towards education and future life prospects. my clients favor paid-up permanent life insurance policies since grandchildren can capitalize on future coverage and cash value. this tactic does not operate in isolation and has its pros and cons like any other financial instrument.
imagine your grandchildren earning a doctorate, fighting hunger and disease, launching a technology startup, or purchasing a vintage sloop. the greatest generation's gifts can fund those life prospects and dreams; however, you must navigate the funds towards your grandchildren and away from overspending or rapacious governmental tax treasuries.
charitable gifting remains a fantastic option for many sandwich generation members. you should clearly outline your values and provide funding where you feel best suited to your value system. this tactic may also afford potential tax immunization with proper tax consultative advice.
your charitable contributions could also land you with future extracurricular prospects. imagine funding a nonprofit organization and having leadership opportunities down the road as an engaged volunteer. the boundaries remain limitless, but as always, seek outside tax counsel when in doubt.
c) paying off consumption debt
paying off consumption debt does not uniformly apply to everyone; however, our dialogue should not forget this topic. you should allocate around 25% to 50% of your windfall towards this tactic with an extremely weak financial wellness profile.
with a moderate to strong financial wellness profile, you may not necessarily require much attention in this area. you should not exclusively or overly focus on this topic, to the chagrin of many financial charlatan talking heads; most importantly, no hard or fast rules exists in this area, and in doubt, you should seek professional financial consultation.
d) building pension assets
the landmark study clearly emphasized that the sandwich generation needs more preparation towards retirement readiness, even with a sizable windfall. you should unwaveringly address avoiding outliving income and cover uninsured healthcare expenses. addressing retirement readiness will maintain your future standard of living.
insurance-based solutions such as extended care insurance in combination with an annuity or a life insurance policy may fortify your pension. as an example, you can reposition your windfall and create solid extended care coverage while retaining coverage ownership. most single premium extended care policies generally require a $50,000 minimum deposit with coverage based on age, health, and insurance structure.
a single premium repositioning tactic provides protection against outliving your income and insures against uninsured healthcare expenses. if you do choose other investment options, you should carefully weigh a financial instruments ability to manage those two risks. investing into volatile assets may not fit the bill and could compromise a holistic asset / liability management approach.
maximizing your windfall requires professional care and careful consideration with your beneficiaries. you deserve nothing less! it also demands restraint on your part.
although mendez & co. financial counselors does not provide tax advice, my clients hire me to seek out professional tax advice. this dialogue also does not serve as financial counsel tailored to your unique situation. it merely serves as a dialogue guidepost and thought stimulation.
you can count on my professional judgment, my resource access, and my practical counsel.
blake mendez
Friday, February 3, 2012
prior employer 401(k) rollover question
hello clients, prospective clients, and business alliance members. thinking about prior employers may sometimes carry emotional baggage, so why bother when you open your email box? rather than wincing when seeing old employer retirement plan statements and correspondence, consider severing those ties and doing yourself a favor.
repositioning your prior employer employer retirement plan demands judicious care in nearly all cases observed professionally. you should observe more holistic asset / liability management with your decision. your decision ultimately affects your ability to avoid outliving your income or manage paying uninsured healthcare expenses.
proper pension design manages outliving income and satisfies future uninsured healthcare expenses. this strategy requires well executed tactics.
your financial pension often reflects your monetized human capital, which also underpins why your rollover procedure requires prudent care. you have many options to invest or spend your plan proceeds; however, focus more on a robust and productive foundational bedrock.
your pension's foundational bedrock will require consistent performance but does not need a yield agenda. making 'alpha' [slang for above average returns] remains relevant but not the driving force behind your pension's foundational bedrock design. focus more on financial capital preservation over the next 55 years.
household liquidity concerns should not hold you back from this decision as well. raid your credit line before you raid your pension, within reason of course, to pay for non-pension needs. focus more on intelligently compounding pension cash flows over time.
so to answer the 401(k) rollover question, in my professional opinion, you should not reinvest your pension rollover into volatile assets. you can reinvest new pension cash flow into more volatility, chasing yield, within reason of course. this strategy works even after turning on income, since you will have other financial cash flow sources building up too, right?
design and execute your own customized pension strategy today. let your pension income tap endow good tidings across your hard won life tomorrow!
repositioning your prior employer employer retirement plan demands judicious care in nearly all cases observed professionally. you should observe more holistic asset / liability management with your decision. your decision ultimately affects your ability to avoid outliving your income or manage paying uninsured healthcare expenses.
proper pension design manages outliving income and satisfies future uninsured healthcare expenses. this strategy requires well executed tactics.
your financial pension often reflects your monetized human capital, which also underpins why your rollover procedure requires prudent care. you have many options to invest or spend your plan proceeds; however, focus more on a robust and productive foundational bedrock.
your pension's foundational bedrock will require consistent performance but does not need a yield agenda. making 'alpha' [slang for above average returns] remains relevant but not the driving force behind your pension's foundational bedrock design. focus more on financial capital preservation over the next 55 years.
household liquidity concerns should not hold you back from this decision as well. raid your credit line before you raid your pension, within reason of course, to pay for non-pension needs. focus more on intelligently compounding pension cash flows over time.
so to answer the 401(k) rollover question, in my professional opinion, you should not reinvest your pension rollover into volatile assets. you can reinvest new pension cash flow into more volatility, chasing yield, within reason of course. this strategy works even after turning on income, since you will have other financial cash flow sources building up too, right?
design and execute your own customized pension strategy today. let your pension income tap endow good tidings across your hard won life tomorrow!
Friday, January 20, 2012
personal asset / liability management concept
hello clients, friends, and family. what an enjoyable day outside! time to finish professional efforts and enjoy the outdoor environment...it's friday, right?
thought that i should post this topic not just on my linkedin profile but also on my independent practice's blogosphere. gil weinreich with adviserone, www.lifehealthpro.com/author/gil-weinreich, wrote the piece on january 16, 2012.
Zvi Bodie (left) has long been a lone wolf in the financial services industry. The Boston University finance professor and veteran risk avoidance advocate has himself risked being pelted with eggs, or worse, at industry gatherings more disposed to hearing his Wharton nemesis Jeremy Siegel’s message about stocks for the long run.
Now the author of the classic college text on investments has written a new book targeted to the general public, and appropriately titled “Risk Less and Prosper.” In a year in which the U.S. stock market has trounced its world peers with a nearly 0 percent return, on top of a dismal decade of stock performance, investors’ heightened sense of risk may make them receptive to a message that was tuned out in previous bull markets. In an interview with LifeHealthPro.com’s sister website, AdvisorOne, Bodie discussed some of the ideas in his book, co-written with financial advisor Rachelle Taqqu.
How did U.S. investors come to be so risk-prone?
Because of the positive stock market experience of the ’80s and ’90s. People don’t have memories that go back that far, so they thought you can’t lose if you hold on.
But you shouldn’t think you’re going to earn a potential risk premium without taking risk. It was always a crazy idea to think that you could, but that idea was drilled into people’s heads by a whole industry campaign.
The vast majority of investment advisors are telling people: “History proves that in the long run you’re going to do best by staying in stocks. And the worst thing you can do is lose your nerve when the stock market goes down; on the contrary you should be doubling up.”
That conventional wisdom is very comforting to people who have lost money. But everyone has a finite horizon. You can only postpone using the money so long.
If you don’t need the money, you’re investing for future generations or some charity; those are the people who should be taking risks. Ironically, the people who are high-net-worth are the ones who make sure they have ironclad guarantees on their standard of living. [Not because they are smarter but because] people don’t like to see their living standard go down.
What is the message of your new book?
In my previous book, “Worry-Free Investing,” I started out by talking about inflation-protected bonds. In this book, I want them to understand that investing is all about you and your goal. I think we’re going to see a popularization of GDI investing [goal-driven investing].
LDI [liability-driven investing] is popular among institutional investors. LDI is matching your assets to your liabilities. In the individual investor world, the one advisors are concerned about, you don’t have liabilities, you have goals. Those are going to determine what you consider a risky or non-risky strategy. If you can save enough to cover your basic needs and lock them in, I believe that’s what people really want. And that’s a form of asset-liability matching.
Investment advisors don’t talk about asset-liability matching; they talk about diversification. But diversification comes in second. The first thing you want to do is cover your assets. In the book, we call it matchmaking.
Since investing is all about trading off risks and rewards, the natural starting point–the benchmark–is to say, “What if I want to take as little risk as possible?” That is where you should start the process. “Now that I know what it will take in terms of what I have to save, what’s the earliest date I have to retire?”
That involves matching. You might be 100percent TIPS in that situation. “So what if I put 20 percent of my money into stocks? On the upside, that means I can save less or consume more; or I can retire earlier.”
But the downside is you could do worse than if you hadn’t done that. You have to look at worst-case scenarios. You won’t be able to retire till you’re 80. Or you have to save 30 percent of your income. [The financial services industry says] you have to take risk, but they don’t say that if you do take risk your outcome could be worse than they describe.
What do you think about financial advisors who recommend annuity products as a means of mitigating risk?
I am very much in favor of insurance products, but, hey, have a cost. So you have to ask the question: Is it worth it? In my view, [annuity products are] a better framing of the real trade-off than ignoring the risk, which is what is being done now.
How can investors manage this trade-off between risks and life goals?
The core asset should be a TIPS ladder that is matched to the person’s spending needs. Young people don’t even know what level of consumption they’re going to have. Most of their assets are in human capital. So it doesn’t matter if they put it all in stocks. I’m talking about people over the age of 50 who have to start thinking what they want to lock in in retirement. They have to think of it like insurance, and if they’re putting it in all in TIPS, they’re not paying big fees.
What can financial advisors do to help ordinary investors?
The challenge that advisors face is to turn themselves into life coaches.
The way advisors are currently compensated is through assets under management. Even those who don’t take commissions, the so-called good guys, the fee-only advisors, are basically pretending to manage people’s assets. But most of these people are getting people to take more risks. It certainly is not the case that they’re doing more for the client than if the client would hold 80 percent of their portfolio in TIPS and 20 percent in a stock index fund.
If I convince [investors] at an intellectual level [to avoid risk], that’s only half the battle. The issue is how to you get it from the frontal cortex to the brain stem–the autonomic system where your feelings reside. Advisors could help these people.
How should people managing for risk as you advise invest in tax-deferred accounts?
With respect to a tax-deferred account, if you have a person who is investing both in stocks and in bonds, the taxable bonds should be held in a tax-deferred account and the stocks in a taxable account. With stocks, most of the gain is going to come in the form of capital appreciation. First, you can defer gain; the other reason is that inevitably you’re going to have losses in some years and in those you can realize the gain and get the tax-loss benefit.
Why are you often a lone voice calling for this risk-off approach?
If you were to talk to any other finance professor, you would hear the same thing. It’s just that there is this huge gap between the academic world and the advisory world today.
from mendez & co. financial counselors - thank you professor bodie!
blake mendez
www.menco-finco.com
thought that i should post this topic not just on my linkedin profile but also on my independent practice's blogosphere. gil weinreich with adviserone, www.lifehealthpro.com/author/gil-weinreich, wrote the piece on january 16, 2012.
Stark Advice on Risk Avoidance From a Leading Academic
Zvi Bodie (left) has long been a lone wolf in the financial services industry. The Boston University finance professor and veteran risk avoidance advocate has himself risked being pelted with eggs, or worse, at industry gatherings more disposed to hearing his Wharton nemesis Jeremy Siegel’s message about stocks for the long run.Now the author of the classic college text on investments has written a new book targeted to the general public, and appropriately titled “Risk Less and Prosper.” In a year in which the U.S. stock market has trounced its world peers with a nearly 0 percent return, on top of a dismal decade of stock performance, investors’ heightened sense of risk may make them receptive to a message that was tuned out in previous bull markets. In an interview with LifeHealthPro.com’s sister website, AdvisorOne, Bodie discussed some of the ideas in his book, co-written with financial advisor Rachelle Taqqu.
How did U.S. investors come to be so risk-prone?
Because of the positive stock market experience of the ’80s and ’90s. People don’t have memories that go back that far, so they thought you can’t lose if you hold on.
But you shouldn’t think you’re going to earn a potential risk premium without taking risk. It was always a crazy idea to think that you could, but that idea was drilled into people’s heads by a whole industry campaign.
The vast majority of investment advisors are telling people: “History proves that in the long run you’re going to do best by staying in stocks. And the worst thing you can do is lose your nerve when the stock market goes down; on the contrary you should be doubling up.”
That conventional wisdom is very comforting to people who have lost money. But everyone has a finite horizon. You can only postpone using the money so long.
If you don’t need the money, you’re investing for future generations or some charity; those are the people who should be taking risks. Ironically, the people who are high-net-worth are the ones who make sure they have ironclad guarantees on their standard of living. [Not because they are smarter but because] people don’t like to see their living standard go down.
What is the message of your new book?
In my previous book, “Worry-Free Investing,” I started out by talking about inflation-protected bonds. In this book, I want them to understand that investing is all about you and your goal. I think we’re going to see a popularization of GDI investing [goal-driven investing].
LDI [liability-driven investing] is popular among institutional investors. LDI is matching your assets to your liabilities. In the individual investor world, the one advisors are concerned about, you don’t have liabilities, you have goals. Those are going to determine what you consider a risky or non-risky strategy. If you can save enough to cover your basic needs and lock them in, I believe that’s what people really want. And that’s a form of asset-liability matching.
Investment advisors don’t talk about asset-liability matching; they talk about diversification. But diversification comes in second. The first thing you want to do is cover your assets. In the book, we call it matchmaking.
Since investing is all about trading off risks and rewards, the natural starting point–the benchmark–is to say, “What if I want to take as little risk as possible?” That is where you should start the process. “Now that I know what it will take in terms of what I have to save, what’s the earliest date I have to retire?”
That involves matching. You might be 100percent TIPS in that situation. “So what if I put 20 percent of my money into stocks? On the upside, that means I can save less or consume more; or I can retire earlier.”
But the downside is you could do worse than if you hadn’t done that. You have to look at worst-case scenarios. You won’t be able to retire till you’re 80. Or you have to save 30 percent of your income. [The financial services industry says] you have to take risk, but they don’t say that if you do take risk your outcome could be worse than they describe.
What do you think about financial advisors who recommend annuity products as a means of mitigating risk?
I am very much in favor of insurance products, but, hey, have a cost. So you have to ask the question: Is it worth it? In my view, [annuity products are] a better framing of the real trade-off than ignoring the risk, which is what is being done now.
How can investors manage this trade-off between risks and life goals?
The core asset should be a TIPS ladder that is matched to the person’s spending needs. Young people don’t even know what level of consumption they’re going to have. Most of their assets are in human capital. So it doesn’t matter if they put it all in stocks. I’m talking about people over the age of 50 who have to start thinking what they want to lock in in retirement. They have to think of it like insurance, and if they’re putting it in all in TIPS, they’re not paying big fees.
What can financial advisors do to help ordinary investors?
The challenge that advisors face is to turn themselves into life coaches.
The way advisors are currently compensated is through assets under management. Even those who don’t take commissions, the so-called good guys, the fee-only advisors, are basically pretending to manage people’s assets. But most of these people are getting people to take more risks. It certainly is not the case that they’re doing more for the client than if the client would hold 80 percent of their portfolio in TIPS and 20 percent in a stock index fund.
If I convince [investors] at an intellectual level [to avoid risk], that’s only half the battle. The issue is how to you get it from the frontal cortex to the brain stem–the autonomic system where your feelings reside. Advisors could help these people.
How should people managing for risk as you advise invest in tax-deferred accounts?
With respect to a tax-deferred account, if you have a person who is investing both in stocks and in bonds, the taxable bonds should be held in a tax-deferred account and the stocks in a taxable account. With stocks, most of the gain is going to come in the form of capital appreciation. First, you can defer gain; the other reason is that inevitably you’re going to have losses in some years and in those you can realize the gain and get the tax-loss benefit.
Why are you often a lone voice calling for this risk-off approach?
If you were to talk to any other finance professor, you would hear the same thing. It’s just that there is this huge gap between the academic world and the advisory world today.
from mendez & co. financial counselors - thank you professor bodie!
blake mendez
www.menco-finco.com
Wednesday, January 11, 2012
financing strategy covering extended care expenses
we know that establishing a flexible, robust extended care strategy makes sense sooner rather than later. ideally, you should begin broaching the topic with your family and financial professional in your early 40's or even sooner; however, if you have not done so, you can begin today.
we should all enjoy a blissful second act in our lives and express our right to define our own life. to express yourself on your own terms, you should not worry about uninsured healthcare expenses and outliving income. easier said than done, right?
holistically managing current and future cash flows remains the focus. this concept dials down asset-focused strategies that your risk hungry advisors serve up. we as a society should devote significant energy to managing future liabilities not merely chasing yield.
you can use the following tactics, in isolation but preferably in combination, to finance your future uninsured healthcare expenses:
a) pay out of pocket dollar for dollar
at some point, you may have to cover uninsured healthcare expenses dollar for dollar from your legacy and/or pension funds. we should remain realistic knowing that we may not 100% immunize your legacy and pension from some monetary reduction; however, the fewer dollars allocated towards this tactic the better.
b) invest in a premium based extended care policy
why not share uninsured healthcare expense risk with a financial counterparty, such as a life insurance company? instead of paying dollar for dollar, you can utilize cents to cover that dollar. this concept has served consumers well and will continue to do so, but stay alert.
many extended care carriers have left the market due to overly aggressive pricing practices in the past. remaining players have increased rates across cohorts as well. few clients favor uncertainty, but avoid letting this short-term shakeout spook you.
as an example, one client with significant cash flow, a strong pension, and productive mineral right interests purchased a lifetime pay policy. we chose this plan because his current and future cash flow matched future rate increases. he did not want to allocate other funds to funding a policy and wanted to pay out of cash annually.
when the time comes for a rate adjustment, we will make preparations using saved funds and/or adjust the policy benefits. reducing policy benefits has an opportunity cost, so it would remain wise to save more as a precautionary element; moreover, we can offset future rate increases when he turns on different pension cash flows.
the client could have chosen a limited pay, paid-up policy but did not due to current cash flow considerations; however, limited pay, paid-up policy structure immunize rate uncertainty more effectively than lifetime pay. this tactic requires significant upfront investment but can payoff handsomely if you want to not think about rate increases.
c) invest in a life insurance or annuity combination policy
this tactic generally involves funding extended care policies with prepaid investment proceeds totaling over 50,000. most consumers fund policies through pension funds, brokerage accounts, or personal savings; however, using pension fund sources may necessitate professional tax counsel.
short of having 50,000 around, you can save your current i.r.a. funding limit per year into a non-qualified account. non-qualified accounts include annuities and non-retirement stocks, bonds, and cash. saving 5,000 per year alone would yield 50,000 over a decade even without a return.
with cash in hand, you can purchase a life insurance or an annuity policy with extended care benefits. the prepaid cash generally will purchase a multiple of benefits based on age and health; plus, health examinations are rather limited since you essentially reserve money against your future uninsured healthcare expenses.
a 60 year old husband and wife client household lacked sufficient life insurance and extended care coverage on the wife. she recently retired from the school district and had begun drawing her state pension. when she annuitized her pension, she chose the option to allow a partial lump sum transfer totaling 100,000.
using that money and after consulting her c.p.a., she purchased a universal life insurance policy with extended care benefits. the benefits covered not only her but also her husband. it made sense to use the life route since her husband would need the funds in her absence.
d) conduct a 1035 exchange on inforce life insurance and/or annuity policies
owning permanent life insurance with annuities has its benefits. you can exchange your inforce life insurance and annuity policies within the i.r.s. 1035 section and purchase a combination plan.
the client that chose the premium based extended care policy had an option to use his universal life insurance policy's net cash value. we could have exchanged part or all of the proceeds to purchase a combination plan; however, we avoided that tactic since he still needed the life insurance protection.
he also did not want to use part of the policy's net cash value. exchanging part of the proceeds can cause properly funded universal policies to lapse if not refunded back to the original level. hitting the target cash value again did not appear appealing to him.
a bonus example: grandparent life insurance gifting not only provides core coverage but serves as an extended care funding source. imagine the intergenerational wealth transfer benefits! your grandchildren could purchase an extended care policy and manage uninsured healthcare expenses with a couple hundred thousand in cash.
...thank you grandma and grandpa for the paid up policy you purchased for me sixty years ago...
know that consulting with your financial professional or your team and saving aggressively will pay off. addressing uninsured healthcare expenses does not sound sexy, but living a long life free from worry surely does. you deserve nothing less!
you can count on my professional judgment, my resource access, and my practical counsel.
we should all enjoy a blissful second act in our lives and express our right to define our own life. to express yourself on your own terms, you should not worry about uninsured healthcare expenses and outliving income. easier said than done, right?
holistically managing current and future cash flows remains the focus. this concept dials down asset-focused strategies that your risk hungry advisors serve up. we as a society should devote significant energy to managing future liabilities not merely chasing yield.
you can use the following tactics, in isolation but preferably in combination, to finance your future uninsured healthcare expenses:
a) pay out of pocket dollar for dollar
at some point, you may have to cover uninsured healthcare expenses dollar for dollar from your legacy and/or pension funds. we should remain realistic knowing that we may not 100% immunize your legacy and pension from some monetary reduction; however, the fewer dollars allocated towards this tactic the better.
b) invest in a premium based extended care policy
why not share uninsured healthcare expense risk with a financial counterparty, such as a life insurance company? instead of paying dollar for dollar, you can utilize cents to cover that dollar. this concept has served consumers well and will continue to do so, but stay alert.
many extended care carriers have left the market due to overly aggressive pricing practices in the past. remaining players have increased rates across cohorts as well. few clients favor uncertainty, but avoid letting this short-term shakeout spook you.
as an example, one client with significant cash flow, a strong pension, and productive mineral right interests purchased a lifetime pay policy. we chose this plan because his current and future cash flow matched future rate increases. he did not want to allocate other funds to funding a policy and wanted to pay out of cash annually.
when the time comes for a rate adjustment, we will make preparations using saved funds and/or adjust the policy benefits. reducing policy benefits has an opportunity cost, so it would remain wise to save more as a precautionary element; moreover, we can offset future rate increases when he turns on different pension cash flows.
the client could have chosen a limited pay, paid-up policy but did not due to current cash flow considerations; however, limited pay, paid-up policy structure immunize rate uncertainty more effectively than lifetime pay. this tactic requires significant upfront investment but can payoff handsomely if you want to not think about rate increases.
c) invest in a life insurance or annuity combination policy
this tactic generally involves funding extended care policies with prepaid investment proceeds totaling over 50,000. most consumers fund policies through pension funds, brokerage accounts, or personal savings; however, using pension fund sources may necessitate professional tax counsel.
short of having 50,000 around, you can save your current i.r.a. funding limit per year into a non-qualified account. non-qualified accounts include annuities and non-retirement stocks, bonds, and cash. saving 5,000 per year alone would yield 50,000 over a decade even without a return.
with cash in hand, you can purchase a life insurance or an annuity policy with extended care benefits. the prepaid cash generally will purchase a multiple of benefits based on age and health; plus, health examinations are rather limited since you essentially reserve money against your future uninsured healthcare expenses.
a 60 year old husband and wife client household lacked sufficient life insurance and extended care coverage on the wife. she recently retired from the school district and had begun drawing her state pension. when she annuitized her pension, she chose the option to allow a partial lump sum transfer totaling 100,000.
using that money and after consulting her c.p.a., she purchased a universal life insurance policy with extended care benefits. the benefits covered not only her but also her husband. it made sense to use the life route since her husband would need the funds in her absence.
d) conduct a 1035 exchange on inforce life insurance and/or annuity policies
owning permanent life insurance with annuities has its benefits. you can exchange your inforce life insurance and annuity policies within the i.r.s. 1035 section and purchase a combination plan.
the client that chose the premium based extended care policy had an option to use his universal life insurance policy's net cash value. we could have exchanged part or all of the proceeds to purchase a combination plan; however, we avoided that tactic since he still needed the life insurance protection.
he also did not want to use part of the policy's net cash value. exchanging part of the proceeds can cause properly funded universal policies to lapse if not refunded back to the original level. hitting the target cash value again did not appear appealing to him.
a bonus example: grandparent life insurance gifting not only provides core coverage but serves as an extended care funding source. imagine the intergenerational wealth transfer benefits! your grandchildren could purchase an extended care policy and manage uninsured healthcare expenses with a couple hundred thousand in cash.
...thank you grandma and grandpa for the paid up policy you purchased for me sixty years ago...
know that consulting with your financial professional or your team and saving aggressively will pay off. addressing uninsured healthcare expenses does not sound sexy, but living a long life free from worry surely does. you deserve nothing less!
you can count on my professional judgment, my resource access, and my practical counsel.
blake mendez
www.menco-finco.com
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