Video: How I Spent My Summer Vacation

My wife, son, and I recently spent a wonderful vacation in London and Paris. It has nothing whatsoever to do with financial matters, but if you're interested, here is a brief video summary:

One Policy for Two Jobs?

     As a participant in the Financial Planning Association's Ask the Planner program, I occasionally get requests for information from consumers with financial questions.
     A recent inquiry came from a couple in their early 60s who were trying to determine whether to buy long-term care (LTC) insurance or, alternatively, buy life insurance policies with LTC riders attached to them. In my response, I discussed the trade-offs involved in purchasing a single product to perform two functions.  Here's the question along with the response:


QUESTION:

My wife and I are worried about the potential future cost of long-term care. We would like to have long-term care insurance, but it seems so expensive. Our life insurance agent suggested buying life insurance policies with riders that cover long-term care. Is that a good idea? 

ANSWER:

It has been my experience that financial products are usually good at doing one thing (i.e., life insurance is good at insuring your life, long-term care insurance is good at insuring against long-term care costs). However, when you purchase one product to handle two very different risks (life and log-term care), it may not cover either one as well as you would like.

I don't know about the specific products you're considering, of course, but this is just a word to the wise. I suspect that a straight long-term care policy would do a much better job of dealing with that issue than would a life insurance rider. And, of course, if you were to purchase the life/LTC combination, there would be a good chance that a nursing home stay would use up all of your life insurance, so that when the insured dies, there could be nothing left to pay out as a death benefit.

Not knowing the specifics of the situation, my advice would be to buy separate policies for life and long-term care. One way you could reduce the LTC premium is by extending the "elimination period," which is the time period during which you would have to pay for your own nursing care before the insurance kicks in and begins to pay.

If one of you has to spend a significant length of time in nursing care, a good LTC policy could cover most, if not all of the costs associated with that stay. Thus it could possibly reduce the need for life insurance.

Obviously, if we knew today which of you would need nursing care, and when, and for how long -- and we also knew when each of you would die -- I would be able to give you much better guidance! That's precisely why they have these products -- because we don't know.

Enjoy the week!

Dealing with stress in your portfolio

Have you ever felt anxious about your investment portfolio?  Who hasn't?  A recent presentation at one of our professional conferences pointed out that five out of every six years will produce a stock market return sequence that either triggers anxiety or smacks your portfolio so hard that you wonder why you ever trusted the markets to begin with. 

This is normal.  Many people simply cannot handle stock market volatility, which is why the people who can have historically tended to make more, over multiple ups and downs, than the people who kept all their money stashed away in Treasury bonds. 

The question is: is there a better way to handle the inevitable anxiety that comes with buying stocks?

Psychologist Ken Haman, who now works at the investment firm AllianceBernstein, says that the key is to stay rational.  He points to studies of the human brain, which show that all of us actually have two brains.  One is the neocortex, where all of your higher thought processes take place.  Below the neocortex is a primitive brain which is about as smart as an alligator; and this lower brain happens to be where all of our survival instincts are housed. 

Whenever you experience panic, the primitive brain immediately takes over and shuts down the neocortex--which allows you to respond instantly (rather than thoughtfully) on those many occasions when a saber-toothed tiger is running in your direction. 

So when the markets have spent the past quarter giving up all the gains they generated in the first quarter, what do you do?  First, talk with somebody who actually listens to you about how you're feeling.  Then start to engage your neocortex.  What do you imagine is going to happen in the future?  Then move to: is that what you think, or how it feels?

If you're talking with a professional advisor, the advisor can guide you through this process, and then, when your neocortex is functioning again, you can look at some of the past market declines and see what happened next, or look at your financial situation and take stock of your progress toward your financial goals.

People who can handle the stock market roller coaster without getting sick seem to have an unfair advantage over everybody else in the investment world.  It seems to depend on which part of your brain is in control.

Have a great week!

New name, but not much is changing for now

Monday, August 2 marks the first business day of Millard & Company. As of August 1, our split-off from Main Street Financial Group became official.

All our clients were very supportive and helpful during this process; it gave us an opportunity to speak with almost all of them within the span of just a couple weeks, and it gave both Juliet and me a renewed appreciation for both the clients themselves and our responsibilities to them. Our clients are the best!

As we have said several times, nothing is really changing in the way we do business. You may notice the new logo and the new-look blog page, but essentially everything else will remain the same. Renovation work is progressing on the depot building, and we expect to move around the end of the year.

My contractor and buddy Mike Karaman and his team have removed all the asbestos siding from the building. They also removed creosote-treated planking that was underneath the siding. As you can tell, there's no insulation at all, so Mike's team will be adding it. The windows and doors (inside and out) will all be replaced as well. Here is a recent photo of the old station master's office, which will soon become, appropriately, Juliet's office:

Not much to look at now, but give us a few months!

Although we’re excited about the future, we’ll still be conducting business as usual. We have some ideas in the works, which we will be firming up in the next 6 to 12 months. In the meantime, we’ll be focusing on servicing our clients and moving into our new home (in that order, of course).

I must take this opportunity to express the deepest gratitude and appreciation to my former partners at Main Street Financial Group. Stephen, Rhett, Cooper and Tripp have been stellar in their support over the years. It is a privilege to be associated with them

Enjoy the week!

Following John Henry Into The 21st Century

The entire globe is in the midst of an economic upheaval. Where will it end?

No one knows, of course. But many people, especially in the U.S., are searching for ways to stem the tide of global change. What is the likelihood that the course can be reversed?

For a possible answer to that question, I’d like to borrow/steal an illustration from Daniel H. Pink’s excellent book A Whole New Mind: Why Right-Brainers Will Rule the Future:

You’re no doubt familiar with the American folk tale of John Henry, the mythical “steel-drivin’ man.” According to the legend, John Henry was a strong, hard-working laborer who used a 20-pound hammer to drive spikes in constructing a railroad line. He was famous for his unmatched speed and strength.

Every school kid knows the story: One day, John Henry’s employer brings in a steam-powered drill and announces that it can do the job better, faster, and cheaper than any man, even the great John Henry. A race is arranged. A fierce competition ensues. After falling behind, John Henry summons a superhuman effort and rallies for the victory. But the effort is too much for the big man, and he dies “with the hammer in his hands.”

The legend of John Henry gained popularity at the dawn of the Industrial Age. It succinctly expressed the anxiety of a culture struggling with the automation of traditional labor. That culture gave way to mass production, which gave way to a knowledge- and service-based economy in the late 20^th Century.

Those transitions were traumatic and painful to the people they affected. But no matter how hard those people may have tried, they—like John Henry—could not stop the change from taking place. And, just like us today, they had no way of seeing what was coming next—they only knew what they were losing.

Ultimately, each painful transition brought about advancements that benefitted us all.

As we observe the present-day transition from the Information Age to what Pink refers to as the “Conceptual Age,” it is natural to experience angst over what we might be losing. But at the same time, we might balance that angst with a sense of hope that—if history is any guide—we just might be stumbling headlong down a bumpy road that leads to a better world.

What Are We Thinking?

2010 marks the 25th anniversary of the Certified Financial Planner Board of Standards, which grants the CFP^® certification and upholds it as the recognized standard of excellence for personal financial planning. To mark the occasion, the Board recently conducted a survey of 1,002 Americans to gauge their opinions regarding the economy, financial regulation, and their own personal financial situations.

Americans are keeping their optimism in check and preparing for a long slow return to growth, according the poll:

• Nearly two out of three Americans (65 percent) are more concerned about their finances today than they were at the beginning of the financial crisis two years ago.
• A bit more than a third of Americans (37 percent) expect to see their personal finances improve in the next six months, versus less than half (46 percent) who expect to hold onto what they currently have, and 16 percent who expect to lose money.
• 80 percent of Americans say that Congress and regulators have not done enough “to deal with the financial market problems and their impact on American investors.”
• A bright spot in the findings: 44 percent of Americans expect the U.S. economy to improve in the next six months, while only 28 percent expect things to get worse. A smaller group (22 percent) anticipates no change in the economy.
• When asked to describe how they feel about their personal finances, the #1 response from Americans was “cautious” (33 percent), followed by “calm” (26 percent), “concerned” (25 percent) and “hopeful” (25 percent). (Multiple responses were permitted to this question.)
• Interestingly, ethnicity seems to bear on the perception of the prospects for the economy, with just 38 percent of whites expecting the economy to improve, compared to 51 percent of Hispanics and 74 percent of African Americans.

The survey found the following about Americans’ attitudes toward financial planners:

• More than two out of five Americans (43 percent) think financial planners are now “more important in the last two years since the start of the financial crisis,” compared to about a third (36 percent) who see no change, and 14 percent who now see planners as being “less important.”
• Overall use of financial planners by Americans has remained almost unchanged during the first two years of the U.S. financial crisis – starting at 29 percent compared to 28 percent today.
• Of those who have started using a financial planner since the start of the financial crisis, nearly a third (31 percent) say they have done so because “I felt like I needed more financial guidance during these difficult times for investors.” A bigger percentage of those in this group (44 percent) said they have started using a financial planner during the last two years for reasons “unrelated to the financial crisis.”

For some reason, there was one question that asked respondents to describe the economy as an animal. The answers were actually quite interesting and revealing: they tend towards slow, lumbering animals like sloths, bears, turtles, and elephants, while few choose the iconic symbol of confidence, the bull.

Not sure what all this tells us beyond what we already know, but I thought it was interesting nonetheless.

Have a great week!

Dueling Views of the Economy

I hope your 4^th of July was as good as mine. This week’s video concerns the perils of forming strong opinions about the future of the economy. If you’d like to read the results of our recent survey, they are below the video link.

We had a very high response rate to the survey; the results were gratifying as well as edifying. 95% of respondents read all or part of each week’s economic update email. In addition, 84% said they liked the video updates.

The comments were very interesting and presented me with some challenges. There were a few comments indicating that the videos were too long; others thought they were too short; and still others thought they were just about the right length. In addition, there were several useful suggestions for improving the technical parts of the videos.

Finally, there were some excellent suggestions for topics to cover. Frankly, between the topics I’d like to cover, the topics that have been suggested, and the topics that come up each week, I have more than enough to write and talk about. The challenge is to decide whittle it down to one a week.

Thanks for the feedback, and have a great week!

–Andy