Actively Managing Your Investments is Dangerous to Your Financial Health

Oct 19 2015

I find interesting connections among my readings and discussions I have with members.

There are a couple noteworthy articles in the November 2015 Kiplinger’s Personal Finance magazine; “4 Investing Rules to Live By” on page 50 and the Andrew Feinberg article on page 51. Put these two articles together with the book, “DIY Financial Advisor, A Simple Solution to Build and Protect Your Wealth” by Wesley R. Gray and a story begins to develop.

The Andrew Feinberg article is about the difficulty of managing investments to beat the markets. Mr. Feinberg is an intelligent person who ran a hedge fund with a staff of equally smart people. They spent their lives trying to be successful for their clients and for the challenge of beating the markets. They lost and they are not alone when you consider how few mutual fund managers ever beat the market. Even the ones that do only beat the markets for limited amounts of time then they revert back to the norm.

Given all the overwhelming evidence about the difficulty of beating the markets, why do ordinary working people like us think we can do it? The data are out there that indicate the public’s inability to actively manage our investments. We fail because we think actively managing our investment selections and timing our buys and sells is the way things are done.

We have been so conditioned by various sources to think of investing as a complicated process of trading that many of us believe investing for our futures is more luck than planning. I hear all the time how investing is nothing more than gambling and how the deck is stacked against us.

Too often I’m drawn into discussions about trading stocks or mutual funds, hot tips, “put” and “call” options, alternatives (investments outside the stock and bond norm), investment programs offered by insurance firms and even penny stocks. My response is usually disappointing to most because I always state all the complexity, costs and risk are not necessary. Investing should be simple and boring. And neither the Koch brothers nor George Soros has anything to do with you building wealth.

That’s where the “4 Investing Rules” article and the “DIY” book come in. Plus there are plenty of my articles on the MOAA web. Successful investing comes down to a simple plan, discipline and ignoring the media and financial sector noise.

Fact is, we can all be successful but success rests with simple, proven, boring strategies and not fly-by-the-seat-of-our-pants investing or fancy trading programs bought at fast-talking pitchmen seminars.

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Medicare Part B Premium Increases in 2016

Sep 30 2015

See update at the bottom of the article.

Some of you need to prepare for higher Medicare Part B premiums next calendar year.

Given how it appears there will be no cost of living increase for Social Security or military retirement checks next year, these premium increases will pack a punch for some Part B enrollees.

Note that most will not pay increased premiums next year. All current Medicare Part B enrollees who pay the lowest premium at $104.90 and are receiving Social Security benefits will not face a premium increase in calendar year 2016.

The people facing the premium increases include:

  • Brand new Medicare enrollees in 2016.
  • All current and new higher-income Medicare enrollees paying the higher premiums.
  • People who have suspended/delayed their Social Security benefits whether enrolled in Medicare Part B now or not.

Most Medicare enrollees will not pay the higher premiums in 2016. Those currently enrolled in the lowest Medicare Part B premium bracket and receiving Social Security benefits are protected from the premium increases by law in years where there is no Social Security cost of living increase.

However, the law does not protect those currently enrolled in Medicare Part B who are in the higher income brackets. Part B participants paying higher premiums due to indexed income will pay the increased 2016 premiums.

The law’s premium increase protections do not apply to people who have delayed their Social Security benefits. So if you are a current Medicare Part B participant but not collecting Social Security, you will pay the higher premiums.

Here is the scorecard for Part B premiums in 2016 per person per month:

Income Singles <$85K $85K – $107K $107K – $160K $160K – $214K >$214K
Income Married <$170K $170K – $214K $214K – $320K $320K – $428K >$428K
No Part B premium increase for 2016 $104.90 mo see below see below see below see below
With 2016 Part B premium increase $159.30 $223.00 $318.60 $414.20 $509.80

(Source: InvestmentNews, 7 Sept 2015)

It is expected that the lowest Medicare Part B premium bracket will reset for everyone in 2017 at $120 per month.

UPDATE: Compromise was reached on Capitol Hill. See the 2016 rates here:

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10 Money Lessons for Your Children

Sep 01 2015

Published by under Investments

Parents sometimes ask me about money lessons they and others can share with children. To be honest, the combination of children and money isn’t my specialty.

“Youth is wasted on the young.”
George Bernard Shaw/Oscar Wilde

I once had clients, a married couple, whose college-aged legally adult daughter came into $50,000 from a court award. The parents called me in to talk some money sense to their daughter before something bad (“bad” as defined by parents) happened to the money.

I gave it my best. I explored her thoughts about the money. I brought my valuable money lessons, projections for what the money could become, ideas for future uses of the money, investment ideas, and I even shaved off a chunk for immediate fun money. All explained in ways a college student might better understand (at the time, my oldest daughter was in college and my youngest daughter was right behind her). I wanted to build a plan together so she would have ownership in the plan. I felt good about it.

The result was she bought two cars. Not a part of any plan. While I wasn’t so naïve to think I would win the war (remember I have two daughters), I at least thought I would win a battle or two. Nope. Not happening.

For those of you with college-age children, I have conducted money classes for college students. (Side note: In my distant past I was a ROTC instructor at a university. Three years teaching two classes per semester. I have experience with college students.) Don’t feel bad if you are having a difficult time getting through to them.

It’s not an intelligence thing. Many just don’t have enough life experience with money to grasp the more complex applications of the information given their current life. It’s difficult for them to wrap their heads around life as 60 year olds or investment concepts; unless they sincerely want to learn about money.

So if you’ve read this far and think I’m a cop-out, don’t give up. MOAA employs a number of recent college grads. I asked these younger staff members what they wish they would have known about money back in the day and of course I added my spin. Here are some tips.

  • Keep the topics and lessons age specific. What are they dealing with financially at that point in their life? Where are they getting their money? What are they spending it on? If they get just enough allowance to live on between pay periods, the lessons are pretty limited.
  • At some point teach them “A part of all you make is yours to keep.” (from ‘The Richest Man in Babylon’). If they don’t keep some for themselves, they are just giving away all their money to others. Spending the money is fun but 5, 10 years from now there will be nothing to show for all their hard work. Show them how shaving off a small portion of pay (say 10%) doesn’t impact their spending that much. Save 10%…you earned it; it’s yours! Over time, they will have something in savings for an important need. As the saving grow, split it between short- and long-term goals. A piece for retirement (even as abstract as that is for young people) is a good idea.
  • If they are working, putting a small portion in an IRA might be a good idea. Maybe as parents, you can offer a match amount (as long as you don’t exceed the child’s earnings). Maybe they save 5% in a liquid savings and 5% in the IRA. It’s important to teach the lesson that putting aside some income now allows them to fund a retirement later. Or put another way…the earlier they invest now, the sooner they can stop working later.
  • Show them the power of compounded money. At first, it seems it will take forever to build some wealth. But like a snow ball rolling down the mountainside, once it hits a critical mass it gets large quickly. Tell them it’s similar to a video going viral on the internet. Getting to the critical mass is the initial challenge and that just requires some discipline.

Start at age 25, $200 mo, to age 65 equals $700,000
(@8% annual average return)
Start at age 35, $200 mo, to age 65 equals $300,000 (same return)
What a whooping difference 10 years makes in the snowball! And they will be socking away more than $200 a month.

  • Build a credit record. Building a credit record and learning how serious credit management is go hand and glove. If your child doesn’t have a credit record early, someone will have to co-sign for them later and they could be behind the credit record power curve as young adults. Pull a credit record at Get a credit card, use it sparingly and pay it off regularly. Make sure the child pays it off; not you. This reinforces the lesson for them to live within their means. So…
  • They need to learn to live within their means. Credit is not a substitute for income or spending beyond their income. As long as the debt exists, their income does not belong to them it belongs to the debt. Without debt, all their income is theirs to build value and wealth. This goes for housing also. Whether in college or afterwards, rent amounts should be managed to stay within a reasonable ratio of income. Don’t be house poor. By saving 10% of their pay off the top (paying themselves first), they can live off the other 90% with a clear conscience.

Other places to cut costs are cable TV, transportation, eating and drinking out, entertainment, haggling on purchases, and buying pre-owned goods online.

  • Don’t go overboard with college loans. Technically speaking spending for college is no different than buying a car or boat. If a $200,000 Bentley or a $300,000 yacht is too much for your budget, how can college expenses at those levels be justified?

Keep a cap on college expenses by finding alternatives to maintain a realistic budget. If your child is unsure of a major, why spend on high college costs as they keep changing majors and extending their graduation date? Spend less at the community college for two years figuring things out and taking core classes. Transfer to the selected university in the final two years when plans are more solid. This can also help a student get into the selected university if they are having a hard time with entrance as a freshman.

A massive debt at graduation means your child can’t afford the payments and will live at home or on your dime. Or you’ll own the debt and your ability to fund your own retirement and needs may be hindered.

  • Have a budget or create a money flow chart; money in, money out. Bottom line is to ensure the money coming in is more than the money going out. Measure the money going into disposable goods versus going into necessities or assets. To build wealth, more should flow into assets than liabilities. Online budget tools include or among others. Need a rough idea how to split things?

Percentage of gross income
Investment in you: 10% minimum (short- and long-term)
Total housing and consumer debt: 40%
* Housing 25-30%, rest consumer debt (not to mean you must have consumer debt)
* What you don’t use in consumer debt (zero being the goal), you have for extra savings/investment or living expenses
Living expenses: 50% (the requirements: food, utilities, insurance, maintenance…)

  • How should you pay off your debts? Generally make consumer debt a priority. Mortgage and student loan debt is not quite as bad as consumer debt. Two plans; one based on psychology and the other math.

Some people need a quick victory. If this is you, pay off the smaller debts first. Of course, you have to make at least minimum payments on all debts but put an extra amount towards the smallest debt first. When the first debt is gone, add the extra amount from this first debt to the minimum amount of the next debt. Continue this snowball of increasing payment amounts as each debt in eliminated.

The interest rate on the debt represents a negative return of your money—you are losing money. Stack the debts with the highest interest rate on top decreasing rates until the lowest rate is on the bottom. Apply the snowballing payment system from the paragraph above.

  • Final idea is for the child. You can do this yourself. Mom and dad don’t have to do this for you. The MOAA financial site has all you need to learn and do. We offer you unbiased advice. We’ve been in the investment business and now provide you the tools to succeed with our financial sector experience.

Thanks to my fellow MOAA staffers for their ideas.

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Boring Investing is Better

Aug 26 2015

One of the most dangerous investment attitudes (along with “this time it’s different”) is the complaint that “my investment isn’t doing anything.” The observation says more about the speaker than it does the alleged short-comings of the investment.

Of course this isn’t about lack of activity at all. Last week the market was really active – actively tanking. I’m pretty sure this isn’t the activity those people had in mind. If the alternative is being trapped in a nose-diving market, “doing nothing” can seem pretty attractive.

When people say the investment isn’t doing anything what they mean is “it isn’t making enough money.” There’s an old Wall Street sales pitch: “Your money isn’t working hard enough for you so hire me and I’ll fix that.” When I was a stockbroker, hearing that phrase always made me imagine the speaker physically whipping the client’s portfolio to make it pick up the pace like some poor galley slave in a Cecil B. DeMille movie.

I remember a revealing cartoon of a broker telling his client “Yes, your money was working for you but it quit and now it’s working for me.”

Investing isn’t supposed to be exciting. Any stock that can rocket to the moon today can crash and burn tomorrow. Slow and steady is what you should want. Boring is better.

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Military ID Cards at Age 65

Aug 14 2015

Should you get a new military ID card at age 65? Yes you should. Technically, it’s not required but it will save you from some grief down the line.

ID cards for retired military members have an “indefinite” expiration date on the front of the card. On the back of the card is an expiration date for medical benefits that expires the month prior to you turning age 65. While your entitlement to medical benefits does not end after the expiration date, your entitlement changes to Tricare for Life (TFL) at age 65. If you haven’t made the change to enroll in TFL, you lose your Tricare coverage until you enroll in TFL. The back of the card indicates your status in TFL at age 65.

The reason is that Tricare Standard and Prime end at age 65 by law. You must be enrolled in TFL for continued Tricare coverage at age 65 and beyond. TFL enrollment simply means that you are enrolled in Medicare Parts A & B. Once you enroll in Medicare A & B and get your Medicare ID card, go get a new ID Card. The ID card office will remove the medical expiration date on the back after they verify your Medicare A & B status and know you’re eligible for TFL.  Now medical providers know you are officially in TFL.

We recently received an email from a member who told us of his trip to the base pharmacy. He still used his original retired ID card with an expired medical date on the back. His card was confiscated by the pharmacy. Turns out, the base hospital implemented a local policy to confiscate cards in an effort to get cards updated for those over 65 years old.

In this fast paced, ever changing world, military ID cards have undergone several updates over the years, photos get old, and some service providers won’t understand the date on the back doesn’t render the card expired. Many bases are now installing electronic scanning devices at the front gates and new ID cards have bar codes for that purpose.

People aren’t ID card experts. An expired date means one thing to most; game over. Save yourself the potential grief and get a new card.

What if you are working at age 65? What are your options. Read this article to find out more.

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