Quotes of The Day: Keynes & Friedman on Inflation...

"By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens." 
- John Maynard Keynes

"Inflation is taxation without legislation."
 - Milton Friedman

Baby Boomers To Inherit More Than $11 Trillion

According to Metlife’s Study of Inheritance and Wealth Transfer to Baby Boomers, there may be a glimmer of hope for baby boomers, many financially burdened, who could possibly inherit more than $8 trillion, mostly from parents and grandparents. 

Roughly 67% of all boomers are set to receive some inheritance in their lifetime.

The study also reports boomers have or will receive a substantial sum from their parents while they are still alive, which increases the total transfer of wealth to $11.6 trillion. 

The median inheritance per person is $64,000, and $2.4 trillion has already been given. The wealthiest boomers expect to receive an average of $1.5 million, and the least wealthy will be left $27,000, a sum that represents a larger percentage of the latter group's overall wealth.

Here are some key findings from the study:

63% of inheritances and 74% of dollars are from parents to children, and the grandparents are the 2nd most common source. Most boomers will receive their inheritance in late middle age.

Although only 17% of boomers had received an inheritance by 2007, 67% will eventually receive one.

The adjusted-for-inflation median amount boomers received by 2007 is about the same as the amount received by the preceding 1927-1945 birth group at the same ages.

3 MORE Life Insurance Myths - Part 2

Last week (December 22) we covered the first three common life insurance myths. Here are the next three:

4.“Buy term and invest the difference.” Mitch Kenvin, an advisor in Dallas with Personal Economics Group and an agent with American United Life has been encountering this myth for 20 years. It’s an interesting notion, he says, but it just doesn’t work in reality.

“People, especially with term insurance, run low on money, lose a job, and it’s always the first bill to go. They’re going to pay the mortgage before they pay their life insurance premium. The theory of buying term and investing the difference is fine except that it never comes to fruition.”


5.“Seniors don’t need life insurance.” This myth pops up frequently in the financial media: Once you’re close to or in retirement, you can drop your life insurance. That’s often a bad idea, says Donald Lippencott, MSFS of the Lippencott Financial Group in Port Jefferson Station in Long Island.

“I have sat with clients for the last 27 years, and the ones that were 45-years-old 27 years ago, who are now knocking on the door of 70, are wishing that they had more and better types of coverage,” Lippencott says.


6.“Every senior needs life insurance.” This is the flip side of number two. Both involve generalizations that often don’t fit a particular situation. The advisors who buy into this myth start with the life insurance product, and then work back to the client’s needs, says Dan Forbes, CFP in Providence, R.I. Forbes says a more suitable approach is to identify the need, and then determine the most appropriate method or product to meet that need.

That approach can lead to the conclusion that some older clients don’t need life insurance, he says:

“If you’re not protecting a pension or if you’re not interested in leaving a sum of money to your beneficiaries or heirs, or if you haven’t recently taken out a long-term mortgage at retirement, it can be hard to justify having a life insurance policy.”

Here's the link to the first 3 life insurance myths: 1, 2, and 3...
3 Life Insurance Myths - Part 1

Baby Boomers Retirement Status...

Vantage Point UPDATE: Intermediate-Term and Long-Term Trend Analysis

On Friday, December 24, the S&P 500 closed @ 1257, and that was...
  
   +10.7% ABOVE its 12-Month moving average which stood @ 1135.
   +10.0% ABOVE its 40-Week moving average which stood @ 1143.
     +3.4% ABOVE its 10-Week moving average which stood @ 1215.


Therefore, the INTERMEDIATE-Term trend IS MODERATELY BULLISH and the LONG-Term trend is BULLISH.

Quote of The Day: Sir Winston Churchill on Optimism...

“The pessimist sees difficulty in every opportunity.” 

“The optimist sees opportunity in every difficulty.”  

 - Sir Winston Churchill

Baby Boomers By The Numbers...

3 Life Insurance Myths - Part 1

Life insurance is a fairly straightforward financial product. Nonetheless, there are numerous myths about its purpose, features and cost.

1. “I don’t believe in life insurance.” This myth is based on doubts that life insurance has value, and the prospect will encounter a situation where he or she might benefit from the coverage. There’s often something deeper behind that myth, says Matt Dobbie, president and CEO of uFinancial, a MassMutual agency in Camp Hill, Pa.

“I think part of that myth comes from the fact that clients struggle with the reality that something can happen, and if it does, there are people in their lives who will be negatively impacted,” Dobbie says.

2. “Seniors can’t get life insurance at a reasonable cost.” It’s easy to understand this myth’s origins. Fran Jacoby, CLU, ChFC is a financial planner for Prudential in Indianapolis who encounters this notion frequently.

“When they reach, let’s say, 60-years-old, they think they can’t get life insurance at any reasonable cost,” she says. “They just believe it’s so expensive that they don’t want to think about it. [But then] they see that actually premiums are really quite affordable and that you can get life insurance at age 60.” Seniors also start worrying they can’t qualify for coverage.

“If your blood pressure is medicated and you are stable, we’re more than happy to give you really good rates” Jacoby says. “But people automatically think ‘I have high blood pressure. That’s a major illness; they won’t give me any coverage.’ But that’s not the case at all.”

3. “I can’t afford it.” This myth forces an advisor to get creative in freeing up resources. That may require reviewing the client’s budget, restructuring their debt, determining if they have nonproductive assets or reducing their tax liability to free up cash flow.

“A good financial advisor will help you find the dollars,” Dobbie says.


Here's the link to 3 more life insurance myths: 4, 5 and 6...
3 More Life Insurance Myths - Part 2

Understanding Rates of Return - Become Your Own Banker and Bank On Yourself!

Vantage Point UPDATE: Intermediate-Term and Long-Term Trend Analysis

On Friday, December 17, the S&P 500 closed @ 1244, and that was...
  
   +9.8% ABOVE its 12-Month moving average which stood @ 1133.
   +9.0% ABOVE its 40-Week moving average which stood @ 1141.
   +3.1% ABOVE its 10-Week moving average which stood @ 1207.


Therefore, the INTERMEDIATE-Term trend IS MODERATELY BULLISH and the LONG-Term trend is BULLISH.

The U.S. Structural Unemployment Problem...

Initial jobless claims came in, as expected, at 420,000 on Thursday, December 16. That's an improvement over last week and shows improvement in the long-run.

But does it even matter?

The reality is that, while claims are improving, the U.S. has a structural unemployment problem that isn't being addressed.

There just aren't any jobs for workers who've been hit the hardest by the housing collapse, and with the way the housing market is going, there likely won't be for some time.

And that's why we're not seeing an improvement in the unemployment rate.


From WaverlyAdvisors.com (emphasis ours):

Note that the present situation is complicated by the fact that a weak market for unskilled workers were covered over by the housing boom, causing convergence in negative long and short term trends.

What does this mean? Simply that the structural nature of unemployment now is significantly different than during historical comparables and that moribund job creation can keep unemployment levels sticky even as claims begin to recede due to persistent long-term joblessness.

Why Interest Rates Are Jumping...

The chart below shows us that the yield on the 10-year T-Note has gone from a low of 2.38% on October 8th to 3.45% as of Tuesday’s close. That's a yield spike of over +44%!

The primary reasons for the jump are as follows:


1. Economic reports, including consumer spending and retail sales have exceeded expectations.

2. Economic growth is projected to improve in 2011 thanks to persistent quantitative easing by the Fed and the almost certain extension of 2010's tax rates for the next two years.

3. As a consequence of 1. and 2. above, the risk of a double-dip recession is abating, a primary reason why rates have stayed so low for so long.

4. The less the likelihood of a double-dip recession, the less the risk of a deflationary malaise and the greater the likelihood of inflationary pressures.

5. And the less the likelihood of a double-dip, the greater the likelihood stocks will outperform bonds in 2011. As a result, hedge fund managers and savvy investors are selling bonds to buy stocks. And the stampede for the exits before year end is adding further fuel to the momentum. Thirty-year T-Bond yields are also on the rise...

Quote of The Day: Bill Gates on Pessimism...

“Pessimism is so often wrong because people assume a world where there is no change or innovation. They simply extrapolate from what is going on today, failing to recognize the new developments and insights that might alter current trends.” 


- Bill Gates

Starting Your Own Leasing Company! - Become Your Own Banker and Bank On Yourself!

Vantage Point UPDATE: Intermediate-Term and Long-Term Trend Analysis

On Friday, December 10, the S&P 500 closed @ 1240, and that was...
  
   +9.5% ABOVE its 12-Month moving average which stood @ 1133.
   +8.9% ABOVE its 40-Week moving average which stood @ 1139.
   +3.5% ABOVE its 10-Week moving average which stood @ 1199.


Therefore, the INTERMEDIATE-Term trend IS MODERATELY BULLISH and the LONG-Term trend is BULLISH.

Are The Wealthy Paying Their Fair Share?...

The Top 10% of taxpayers reported 46% of all adjusted gross income (AGI) nationwide in 2008 and paid 70%! of all federal income tax.  

In 1980, this group reported 32% of AGI and paid 49% of all federal income tax. 


Source: IRS
  

Job Woes & Housing Distress Inextricably Linked...

Although U.S. employers hired a net 39,000 workers in November 2010, the nation's unemployment rate rose to 9.8%, equal to 15.1 million out-of-work Americans.


Through the first 10 months of calendar year 2010, 909,487 homes have been seized by lenders as a result of foreclosure, an average of 2,992 per day.  At that pace, 1.1 million homes will be repossessed during calendar year 2010.


Sources: Department of Labor and RealtyTrac

What Long-Term Care Insurance Consumers Actually Pay...

According to a recent report by the American Association for Long-Term Care Insurance, there’s a disconnect with what consumers actually pay for Long-Term Care Insurance (LTCI) and what they “think” they’re going to pay.

“The single greatest misconception held by consumers is the actual cost of coverage,” says Jesse Slome, AALTCI's executive director. “Most people perceive the cost is actually quite a bit higher than the real amounts paid by large percentages of those purchasing coverage.”

The data in this study is based on an analysis of over 200,000 purchasers of partnership qualified LTCI policies, and this discrepancy or misunderstanding of the actual price leaves an opportunity for advisors to educate prospects and clients.

Taking a look inside the numbers:  “One fourth (27.8%) of individuals purchasing long-term care insurance during the first half of 2010 who were under age 61 pay less than $1,000 a year.”  

In addition, the survey reveals:

• Nearly one-in-five (19.4%) purchasers in the study who were under age 61 pay between $20 and $30 a week for new policies.
  
  
• Over one-fourth of buyers (28.9%) in this age band pay between $1,500 and $2,500 a year with the remainder paying more.
  
  
• Less than one-tenth of these buyers (6.8%) pay $4,000 or over.

Slome says, “Studies that report average premium costs regrettably mislead the public into the perception that long-term care insurance is expensive. Averages include large numbers of older buyers and other factors that result in higher costs. The fact is that many people pay far less than the average amounts reported.”

According to the report, the average age for new individual purchasers is now 57 with 8 out of 10 (80.5%) of new individual buyers in 2009 falling under age 65 when applying for long-term care insurance. 


What Actual LTCI Consumers Pay Yearly...

Buyers Under Age 61

    Less than $999            27.8%
    $1,000 - $1,500           19.4%
    $1,500 - $2,500           28.9%
    $2,500 - $4,000           17.1%
    $4,000 and over            6.8%


Buyers Age 61 - 75

     Less than $999               9.0%
    $1,000 - $1,500           12.5%
    $1,500 - $2,500           34.5%
    $2,500 - $4,000           28.4%
    $4,000 and over           15.6%

Automobile Financing - Become Your Own Banker and Bank On Yourself!

Vantage Point UPDATE: Intermediate-Term and Long-Term Trend Analysis

On Friday December 3rd the S&P 500 closed @ 1225, and that was...
  
   +8.4% ABOVE its 12-Month moving average which stood @ 1130.
   +7.8% ABOVE its 40-Week moving average which stood @ 1136.
   +3.0% ABOVE its 10-Week moving average which stood @ 1189.


Therefore, the INTERMEDIATE-Term trend IS MODERATELY BULLISH and the LONG-Term trend is BULLISH.

High-Yield Bonds & The Historical Impact of Rising Interest Rates...

Even at historical low yields of about 7%, high-yield corporate debt stacks up favorably against the S&P 500, which has a dividend yield of less than 2%. That means stocks, which are a lot more volatile than bonds, would need to gain at least +5 percentage points of performance just to keep up with a more predictable 7% yield from high-yield bonds.

Historically, high-yield bonds have not been as sensitive to interest rate increases as investment-grade bonds and treasury bonds.

For example, one of the biggest threats to fixed income right now is that a sudden spike in interest rates — currently at historic low levels — would further wipe out returns. According to an analysis of the biggest interest rate moves over the 20-year period through June 2006, high-yield bonds are remarkably resilient against interest rate volatility.

Between September 1987 and June 2006, there were six separate 12-month periods that saw the yield on the 10-year Treasury climb by between +117 and +222 basis points.

The average total return of high-yield bonds for those same 12-month periods was +5.5%, with just one negative-return period.

In comparison, the average total return for investment-grade corporate bonds over the same periods was a loss of -0.1% ,  including three negative-return periods.

Of the six 12-month periods, the worst performance for high-yield bonds was a decline of -1.57% in 1994, when the Treasury yield climbed by +204 basis points. Over the same period, investment-grade bonds fell by -3.34%.

The best 12-month period for high yield was through May 2004 when the bond category gained +13.23% on a 130-basis-point gain in the Treasury yield. Investment-grade bonds over the same period fell by -0.47%.

One of the main reasons high-yield bonds are able to weather interest rate volatility is the yield “cushion,” according to Sabur Moini, manager of the $1 billion Payden High Income Fund (PYHRX). For example, the current 6.8% average yield on high-yield bonds compares with a 3.8% average yield on investment-grade bonds.

“The bigger yield cushion makes high-yield bonds a lot less interest-rate-sensitive,” Mr. Moini said.

“Typically, low growth, but not in a recession, is the best environment for high-yield bonds,” said Michael Collins, co-manager of the $700 million Prudential Total Return Bond Fund (PDBAX). A little bit of inflation and projected economic growth in the +2% to +2.5% range “is almost the sweet spot for high yield,” he said.

Study: 2 Out of 3 Americans Flunk Finance Quiz...

Most Americans have an inadequate understanding of financial products and concepts, according to a new study conducted by Mathew Greenwald & Associates, Inc., Washington.

The research revealed that 69%! would receive a failing grade on a quiz about financial products and concepts.

When asked to rank the importance of understanding their own personal finances, 79% gave it a 7 or above on a scale of 1 (“What I don’t know won’t hurt me.”) to 10 (“I feel the need to know all I can about my financial situation.”).

Among the report’s other findings:

35% of respondents knew that the average rate of inflation is closer to 3% than 6% or 9%.

50% believed (incorrectly) that bonds offer the best protection against inflation compared to stocks.

32% knew that index funds seek to match the returns of stock or bond benchmarks, but 34% acknowledged they had no knowledge of how index funds work.

35% knew that money market funds are comprised of short-term investment vehicles.

27% realized that permanent life insurance can pay dividends.

49% believed (incorrectly) that term life insurance is more likely to have cash value than permanent life insurance.

57% thought annuities were only sold by banks.

61% thought Social Security funds are invested in the stock market!!!

44% did not realize they paid into Social Security!!!

Only One Job Opening for Every Five Job Seekers...

There were 5 unemployed Americans (14.77 million) for every 1 job opening (2.93 million) in the country as of 09/30/10.

Source: Department of Labor