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News & Views |
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December
2009 |
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In This
Issue ·
Our thoughts on financial markets and the economy ·
What’s so great about foreign stocks anyway? ·
Building a better risk tolerance questionnaire ·
Insure to rebuild ·
Good time to consider disability insurance ·
Philanthropy vs. charity ·
Happy (65th) Birthday to you ·
Long term care insurance Contact Us |
Our
thoughts on financial markets and the economy
In our
opinion, there is a widening gap between the recent resurgence
of the financial markets and the actual state of the global economy.
While we are grateful for the strong performance seen in our clients’
portfolios this year, substantial evidence still points towards slow economic
and corporate earnings growth in upcoming years – at least in the
developed world. One respected research service we
consult projects annual returns over the next five
years of anywhere between -2% and 8% for balanced portfolios like those
we construct here at PFPG. It is this kind of scenario analysis that
leads us to believe the investment upside is now relatively modest. As a
result, we continue to look for ways to temper the risks inherent in
individual portfolios – while providing for growth opportunities as they
arise. What’s so great about foreign stocks anyway?
We
found this article from Fidelity (“Why foreign stocks are important”) quite
interesting. The usual rationale for investing in foreign stocks has been that
overseas markets don’t rise and fall in tandem with the U.S. market, so
owning a healthy proportion of them in a portfolio will reduce overall risk.
During the recent crisis, however, foreign stocks tumbled as much or more
than U.S. ones. Fidelity’s historical research suggests that once an acute
crisis has passed, foreign stocks continue to add diversification benefits,
and a portfolio that includes foreign stocks will outperform a U.S.-only
portfolio. The higher growth rates of many foreign economies are an
additional strong reason for long-term investors to include international
investments in their portfolios. Building a better risk tolerance
questionnaire
PFPG
uses a scientifically validated questionnaire designed by Finametrica to
evaluate clients’ risk tolerance. Finametrica’s philosophy is that the
measure of your risk tolerance isn’t your willingness to invest in stocks
during “normal” times, but whether you are likely to emotionally withstand
the ups and downs of volatile periods. Good financial planning also takes
into consideration your risk capacity, or how much loss the portfolio can
bear without adversely affecting your current and future standards of living.
A financial plan also analyzes whether your preferred allocation incorporates
sufficient risk to meet your stated long-term goals. To read more about risk
tolerance and Finametrica’s approach, check out this article, “How much risk can you stand?” on CNNMoney.com. Insure to rebuild
Review
your homeowners coverage periodically to make sure it covers the cost of
rebuilding your home should a disaster occur. While home market values have
been in decline, rebuilding costs have steadily increased. Construction
prices fluctuate due to overseas competition for building materials, the
weakness of the U.S. dollar, variations in fuel and energy costs, and less
competitive pricing from builders as construction companies go out of
business. The cost to replace your home, including any additions or
renovations made since you purchased your policy, may far exceed its resale
value on the market. In Maine, the cost to rebuild a typical house is $150 to
$200/square foot. Good time to consider disability insurance
Disability
insurance protects your most important asset: the ability to earn an income
and maintain your existing financial plan. If disability insurance sounds
like an “extra”, consider that roughly 30 percent of Americans age 35 to 65
will suffer a disability lasting at least 90 days sometime during their
careers. If cost has deterred you from considering disability insurance, now
is the time for employees and business owners to give it another look. Due to
decreased business, insurance companies are dropping prices and improving
benefits to attract new customers. A good policy covers both accidents and
sickness. Coverage is provided for a period of years or until a specific age.
Because of the greater financial burden of chronic disability, a long-term
disability policy is more critical than a short-term policy. Philanthropy vs. charity
Few
people today would be comfortable labeling themselves as philanthropists.
That is a term reserved for Andrew Carnegie, Bill Gates, Warren Buffett or
Harold Alfond. If we examine what philanthropy has meant in American history,
however, we realize that all of us, regardless of economic status, have the
capacity to be philanthropists. What
is the distinction between philanthropy and charity? Some view philanthropy as addressing
society's future needs, whereas charity addresses immediate needs. Think of
the Biblical adage of giving a man a fish vs. teaching a man to fish. Others see the two terms as synonymous. According
to Wikipedia, philanthropy may best be defined as private initiatives for the
public good, focusing on quality of life.
This distinguishes it from government (public initiatives for public
good) and business (private initiatives for private good). Its Greek origin resides in
"philos" (loving) + "anthropos" (humanity). In comparison, Wikipedia defines charity as
the act of giving money, goods or time to the unfortunate. Its Latin origin is "caritas"
(preciousness). In
colonial times, philanthropy was rooted in civic voluntary associations. It
wasn't restricted to the wealthy helping the less fortunate. Instead, it was
about people pooling their resources, primarily labor, to pursue specific
common objectives - e.g. establishing a fire association, library, or
hospital. If you give your time or your money to a community cause that helps
others, you too are a philanthropist. Happy (65th) Birthday to you
Approaching
the Big 65, but uncertain about what the choices are for Medicare
supplemental (Medigap) coverage? Wondering whether to keep your employer-provided
insurance after becoming eligible for Medicare? Southern Maine Agency
on Aging offers Medicare Birthday Seminars to help those
turning 65 (or older) evaluate the options and get enrolled. There is no fee,
but a $20 donation is requested. If you don’t live in southern Maine, check
out the State Health Insurance Assistance Program (SHIP) to
find free trained Medicare counselors in your area. The official Medicare
website has excellent online tools for comparing both Medicare supplemental
plans and Medicare Advantage plans (Medicare-approved private HMOs and PPOs)
available in each state. And if you’re already signed up for a Medigap plan,
expect to see revisions in the alphabet soup lineup beginning June 2010. If
you enroll on or after that date, coverage will include hospice care and
respite care benefits. Check with your insurer now about whether your current
plan will be grandfathered in, or whether you’ll need to select a new plan. Long term care insurance
The
Long Term Care Insurance Partnership program is now available in Maine. If
the policyholders exhaust their benefits for LTC services and need to apply for
MaineCare, they may keep personal assets equal to the amount of the coverage
under a qualified “partnership.” That amount is in addition to already exempt
assets (home and car). Other eligibility requirements apply, so be sure to
discuss LTC options with a qualified agent or PFPG. We
wish you a happy, healthy, and fun-filled holiday season! Sincerely,
Thomas S. Rogers, CFP®
Brian L. Dietz, CFP®, CFA®
Debra Yoo Information
contained in this newsletter does not serve as the receipt of, or as a
substitute for, personalized investment advice from |
