Current Events and Should I be Worried?

Currently, the events taking place in Syria and how the United States may or may not respond to them are capturing headlines, but are really not of much importance as it relates to the U.S. and global economies and stock markets. Honestly, from a financial perspective, Syria is the equivalent to a gnat on elephant's behind.

As such, the recent stock market downtrend / volatility is not surprising nor alarming to me. As I am writing this, I could show you various recent articles from the Wall Street Journal and Barron's Magazine with the following titles regarding the stock market and economy: 

Pro

  • Fall Forecast: Sunny                     
  • The Economy is Showing Signs of LIfe
  • Factories Hum Amid Global Pickup
  • Trade Data Signal Consumer-Spending Rise
  • Wealth Effect Boosts Retailers
  • Auto Sales Make Healthy Jump

 

Con

  • Bad Vibes on the Market
  • Corporate Profits Lose Steam
  • Are Stocks Near a Top?
  • Single-Family Home Construction Hits Unexpected Drop-Off 

 

Bottom-line, the biggest risk we face in the near term is what the politicians in D.C. may or may not do regarding the debt ceiling issue facing us in the upcoming months. That issue in and of itself may cause the stock market to become more volatile short term, but it is not something that will derail our economic recovery... it is more a political cat and dog fight. That  being said, 2014 is a mid-term election and I don't believe either party has the stomach to rock the boat economically and negatively impact the U.S. stock market or economic recovery long-term. 

In addition, I don't  see Warren Buffett or other well-respected investment professionals running for this hills. However, I have been forwarded emails from others with links to various websites or interviews highlighting a huge economic collapse on the horizon. Well, some of these individuals make a few valid points, but for the most part, they are just trying to instill fear and either sell a book, video or product. Accordingly, I don't believe you, me or anyone should give these perennial pessimists or product pushers the time of day. 

Long-term investment success is achieved by ignoring blowhards and emotional arguments, without truly factual data to support them. In addition, market volatility and down periods (i.e., months not days or weeks) is part of the game, if someone cannot handle a temporary downturn, then they will let their fears override their sensibilities and not enjoy the benefits and profits that long-term, disciplined and well diversified investors do. 

I should note, that my comments are not directed toward any client of the firm, but are generic in nature. I say this because time and time again I see investors being distracted by headlines and fear mongers. Just as you would not cancel a planned cruise due to a story about a ship losing power at sea or one of your friends getting sick on a cruise, you should not change your specific and long-term investment plan due to something you've read or heard that may seem earth shattering or sensational, but have little relevance to the economy or stock market long-term. 

Five Questions about Long-Term Care 

1. What is long-term care? 

Long-term care refers to the ongoing services and support needed by people who have chronic health conditions or disabilities. There are three levels of long-term care: 

  • Skilled care: Generally round-the-clock care that's given by professional health care providers such as nurses, therapists, or aides under a doctor's supervision. 
  • Intermediate care: Also provided by professional health care providers but on a less frequent basis than skilled care. 
  • Custodial care: Personal care that's often given by family caregivers, nurses' aides, or home health workers who provide assistance with what are called "activities of daily living" such as bathing, eating, and dressing. 

 

Long-term care is not just provided in nursing homes--in fact, the most common type of long-term care is home-based care. Long-term care services may also be provided in a variety of other settings, such as assisted living facilities and adult day care centers. 

2. Why is it important to plan for long-term care?  

No one expects to need long-term care, but it's important to plan for it nonetheless. Here are two important reasons why: 

The odds of needing long-term care are high: 

  • Approximately 40% of people will need long-term care at some point during their lifetimes after reaching age 65* 
  • Approximately 14% of people age 71 and older have Alzheimer's disease, a disorder that often leads to the need for nursing home care** 
  • Younger people may need long-term care too, as a result of a disabling accident or illness 

 

The cost of long-term care is rising: 

Currently, the average annual cost of a 1-year nursing home stay is $74,820* and in many states the cost is much higher. In the future, long-term care is likely to be even more expensive. If costs rise at just 3% a year (a conservative estimate), in 20 years, a 1-year nursing home stay will cost approximately $135,133. 

*National Clearinghouse for Long-Term Care Information, U.S. Department of Health and Human Services, 2011

**Alzheimer's Association, 2012

 

The Rising Cost of Long-Term Care

                       

3. Doesn't Medicare pay for long-term care?  

Many people mistakenly believe that Medicare, the federal health insurance program for older Americans, will pay for long-term care. But Medicare provides only limited coverage for long-term care services such as skilled nursing care or physical therapy. And although Medicare provides some home health care benefits, it doesn't cover custodial care, the type of care older individuals most often need. 

Medicaid, which is often confused with Medicare, is the joint federal-state program that two-thirds of nursing home residents currently rely on to pay some of their long-term care expenses. But to qualify for Medicaid, you must have limited income and assets, and although Medicaid generally covers nursing home care, it provides only limited coverage for home health care in certain states. 

4. Can't I pay for care out of pocket?  

The major advantage to using income, savings, investments, and assets (such as your home) to pay for long-term care is that you have the most control over where and how you receive care. But because the cost of long-term care is high, you may have trouble affording extended care if you need it. 

5. Should I buy long-term care insurance? 

Like other types of insurance, long-term care insurance protects you against a specific financial risk--in this case, the chance that long-term care will cost more than you can afford. In exchange for your premium payments, the insurance company promises to cover part of your future long-term care costs. Long-term care insurance can help you preserve your assets and guarantee that you'll have access to a range of care options. However, it can be expensive, so before you purchase a policy, make sure you can afford the premiums both now and in the future. 

The cost of a long-term care policy depends primarily on your age (in general, the younger you are when you purchase a policy, the lower your premium will be), but it also depends on the benefits you choose. If you decide to purchase long-term care insurance, here are some of the key features to consider: 

  • Benefit amount: The daily benefit amount is the maximum your policy will pay for your care each day, and generally ranges from $50 to $350. 
  • Benefit period: The length of time your policy will pay benefits (e.g., 2 years, 4 years, lifetime). 
  • Elimination period: The number of days you must pay for your own care before the policy begins paying benefits (e.g., 20 days, 90 days). 
  • Types of facilities included: Many policies cover care in a variety of settings including your own home, assisted living facilities, adult day care centers, and nursing homes. 
  • Inflation protection: With inflation protection, your benefit will increase by a certain percentage each year. It's an optional feature available at additional cost, but having it will enable your coverage to keep pace with rising prices. 

 

Your insurance agent or a financial professional can help you compare long-term care insurance policies and answer any questions you may have.

Age 2012 Limit 2013 Limit
40 or under $350 $360
41 - 50 $660 $680
51 - 60 $1,310 $1,360
61 - 70 $3,500 $3,640
70+ $4,370 $4,550

In conclusion long-term care insurance is a double-edged sword: many individuals or couples would greatly benefit from the coverage, but it can be cost prohibitive or at the very least dramatically impact one's budget and lifestyle. As a result of many of the changes in the long-term care insurance industry, coverage and payment options have declined, while premiums have increased. Thus, while many may want the coverage, the vast  majority pass when they see the cost. 

If you or family members have questions regarding this issue, please let us know.  We have resources that  we can share with you that can address whatever questions you may have. 

Competition is good! 

Last year Jake (my oldest son) began mowing the lawn. He was very eager to do it, but once he did it a couple of times, the appeal of it wore off, in spite of being paid. Well just last month I asked Jake to mow the grass, and he stated he really didn't want to. Thus, I asked Luke (his younger brother) if would like to try, and he enthusiastically embraced the chance. 

Well since that first mowing and being paid, Luke wants to take over the mowing. When Jake got wind of this, he was not too keen on it and made it very clear that he did not want to give it up. 

To keep peace and avoid bloodshed, my wife and I agreed to let them alternate mowing. In addition, we have given the boys an additional incentive. Several neighbors have asked when the boys will be old enough to mow their grass. I have told them that hopefully next year, but only after they've honed their skills on our lawn. 

When I approached the boys with this proposal, they became quite interested. However, I made it very clear that they need to become  adept at mowing before I would turn them loose on other lawns. I want them to learn that doing good work and taking pride in it is more important than the money. Also, I have made it very clear that doing a sloppy job is worse than not doing it all and is not an option for them. 

By allowing the boys to compete in mowing the grass has not only upped their game, but has also become a great math and business lesson. When I explain that they could work at a fast food restaurant for say $7.50/hour or mow a lawn in 1.5 hours and make $30+, they both very quickly decided which route they'd rather go. 

I have no idea if and how strongly they will embrace this possible business venture. All I can do is encourage them, while giving them advice and actually letting them talk to their nephews and other kids who've done quite well in this area. I just hope they see the value and reward of hard work. Honestly, I would rather see them have more control over their work environment, and personally I believe they'll take more pride in maintaining someone's yard versus serving up a side of fries with that burger. 

Quotes 

"With interest rates at all-time lows, stocks continue to offer investors the best prospects."

                   Jeremy J. Siegel, Kiplinger's Personal Finance, June 2013 

"Many who abandoned equities in the "flight to safety" have begun to slowly migrate from cash to bonds to high dividends, low volatility stocks, and more recently, to more cyclical stocks. The timid move back into equities is in early stages with much more money still on the sidelines, but flows could occur sporadically."

                   Longleaf Partners Fund, First Quarter 2013 Report

 

Tony Moeller, CPA

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.  

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