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Lot’s of time to think and muse on a variety of topics May 5, 2020

Posted by shaferfinancial in Finance, Mutual Funds for Retirement, Retirement Income.
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I have had a lot of time to read, think, muse of a variety of topics. I just finished a book by Susan Orlean called The Orchid Thief

I loved her writing and found this section on Florida really interesting:

Nothing seems hard or permanent; everything is always changing or washing away. Transition and mutation merge into each other, a fusion of wetness and dryness, unruliness and orderliness, nature and artifice.

Although this was a great description of the state of Florida, I think it also perfectly sums up the finance world. Probably my biggest gripe with the financial planning world, is they try to convince people the financial world can be made orderly and understandable. They try to tell you that their strategies control risk or even in many cases eliminate risk. Just let them manage your money and all will be well. But, in my opinion, nothing seems hard or permanent in the financial world, everything is always changing or washing away. Transition and mutation do merge into each other; unruliness and orderliness mix in weird unpredictable ways.

Instead should we not admit to lacking the ability to predict, to control (risk), to not know when we have unruliness or orderliness and what that means? Are there really a class of individuals that can know the meaning of all the above?

Last year my wife had breast cancer. My business suffered because I suffered. This year it is an unruly virus creating fear and uncertainty. As my son pointed out, the numbers (cancer survivor numbers) make him feel like he had some control over an event that was impossible to process. I find myself digging into Covid 19 numbers now for the same reason. But the numbers are an illusion of control. Just like those pretty charts the financial planners use and the illustrations I use. They may make you feel better, but reality always has plans for you.

The pubic health officials are going through the same awakening. Their models, based on their understanding of how a virus infection spreads, are just an illusion. They don’t seem to get this. Funny, how from week to week, their models need to be changed and give out widely different accounts. Then when reality doesn’t appear to be concerned with their models, they will recalculate again and again, never getting it right. Yet, we are expected to bend to their model’s version of reality instead of what our senses are telling us.

Transition and mutation merge into each other, a fusion of wetness and dryness, unruliness and orderliness, nature and artifice.

Musings on Covid 19 May 1, 2020

Posted by shaferfinancial in paradigm shift, trust, Uncategorized.
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There is so much panic and subterfuge now around Covid 19, that it is close to impossible to write anything based on what the science is demonstrating without having people jump right to criticism and emotional outbursts. Note the craziness over the release of pre-prints of the antibody testing now ongoing. People weren’t willing to allow science to guide their opinions and the outcry and criticism of the Stanford research was laughable. And it turns out that now multiple studies with various sampling methods, many randomized are proving the Stanford researchers correct. USC researchers, University of Miami researchers, Harvard researchers and the state of NY public health researchers all concur that there are many many people out there that have had the infection without symptoms. And the worst part is this is great news. It means the virus isn’t as deadly as we thought.

The 2008-2009 H1N1 pandemic provides an interesting comparison. This influenza A pandemic started in the US and like Covid was a novel virus. It spread to the rest of the world and in its first year it was estimated to have killed 360,000 people. So far, it has been estimated that Covid 19 has taken 233,000 deaths.

But that is where the comparison stops. That strain of H1N1 mostly killed children and young adults. While the average age of death for Covid 19 is around 80. It was thought that the reason for this was that older people had antibodies from a previous strain of H1N1, that occurred many years before. That is why this pandemic was much worse in 3rd world countries, than the US. While we had 12,000 deaths here in the US, countries with larger percentage of the young had much worse deaths. By June, the end of the influenza season the CDC reported more than 1 million cases in the US. 980 schools were closed in early May in places that had significant activity. The pandemic that started in mid-April was essentially done by mid July of that year. It has reappeared yearly since then, but in much reduced numbers. In July of the first year clinical trails started for a test. And by September 15th a vaccine had been made. A second wave started in late September causing school closure again. But that second wave subsided in 2 months. The vaccine was distributed to the public in December of that year and provided significant immunity. This H1N1 infection faded into the background and is still with us today. There were some hospitals that erected tents to treat patients because of overflow from this virus.

Note our response to a virus that was killing children and young adults. It was rational. School closures in hot spots. Erecting tents to provide health care in areas that were overrun with patients.

Now, what we know of the COVID 19 virus is it is killing older people at a much greater rate than the H1N1 virus killed young folks. That is common sense, of course, as 80 year olds are much sicker in general and don’t have reserves to overcome novel viruses or strong immunity systems. And I say this without prejudice or meanness in mind. The life span of someone born in 1940 (80 years ago) was 70. These folks dying of Covid 19 have already outlived their peer group by 10 years or more. And this is what we are seeing. The oldest and sickest people, mostly in long term institutional care, are dying from Covid 19, while each younger segment are mostly recovering and at the youngest age groups showing little or no symptoms.

So that begs the question, Why, like the 2008-09 pandemic, did we not do a vertical integration mitigation strategy? In other words, in the 2008-2009 pandemic we closed schools in heavily impacted areas because the children were the ones most heavily impacted. Why did we not lock down long term care facilities, shelter in place orders for those 65 and older who don’t work, masks for health care workers who work with the elderly, etc.? Why instead did we do a horizontal mitigation strategy, closing down our entire society? And don’t say we didn’t know, because we did from both China and Italy/Spain. We knew who was at risk and how to best protect them. Don’t say in order to protect Grandma, we needed to keep their grandchildren out of school, because that violates all we know about how to stop pandemics and what we have done every time since WW2.

Next post I will take a look at the 1957 flu pandemic.

I hope I have left you with some more understanding of pandemic societal reactions and some deep questions.

Be safe.

COVID 19 April 11, 2020

Posted by shaferfinancial in Uncategorized.
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Because I live in a sparsely populated state and live next to an even more sparsely populated state, I can track the virus cases pretty closely. According to the University of Washington modelers, Vermont is past peak and here in New Hampshire we are basically at peak. So far about half the deaths in New Hampshire are of institutional residents (Nursing Homes, Disabled Home). In Vermont where the deaths are detailed, 20% of all cases are from 2 nursing homes.

This is very frustrating for me, because the institutions of long term care should have been put into lockdown day 1 of this pandemic. I know this is “Monday morning quarterbacking” to some, but it is really what history tells us we should do for our most vulnerable citizens. I find it hard to believe after all we have experienced over the years with pandemics, that this wasn’t the first move. In addition, stay at home orders should have been issued for all non-working folks over the age of 60. I believe there was no need to crash the economy to protect folks. So many people think that “flattening the curve” was about saving lives, when it wasn’t really. In fact, at the end of the day, it will probably cost us lives.

Flattening the curve was an attempt to keep peaks from overwhelming the medical system, but it elongates the curve and when we reach herd immunity. And it is only herd immunity that protects our most vulnerable population. At the end of the day, I might be wrong and this virus behaves differently than all the other virus pandemics, but I think history will prove me right. This won’t be the last virus to reach pandemic status. Are we going to crash the economy every time??????

Yes, there are hot spots that require assistance with more medical workers, equipment, PPDs, etc. But, we have the know how to set up temporary MASH units for these hot spots. And yes, they would have been temporary. The virus will kill folks. That is the bottom line. That is biology or nature. Nature is bigger than us, something we need to admit. People die, something we need to admit.

At the end of the day, will more people die of this virus or from the effects of unemployment, stress, violence, homelessness, etc. that the stay at home orders caused?

Will the governors double down now and continue to issue stay at home orders even when we are weeks beyond peak?

Locally, the town of Hanover is upset because 85 or so students returned to campus (mostly international students). They feel this could overwhelm the town??????? One person quoted as saying having all these “vectors” coming back to town is a terrible injustice to Hanover. No comment on when they closed campus and sent thousands of “vectors” all over the world a month ago. I guess it was OK for colleges to send their “vectors” home, but not when a few students come back to town.

And on one evening the students were caught not social distancing and playing beer pong in their off campus apartment. Gasp…….How long before many more break social distancing requirements? I mean we can just social distance for months and months, right, with no negative effects……..

Maybe we should have given them the anti-body test to see if they are part of the cure (crowd immunity)?

OK…just my opinion and one of a small but getting more vocal minority.

Hearing from many clients lately April 6, 2020

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Been hearing from some of my clients lately. They are thanking me for getting them into an EIUL policy. This is typical when we see large stock market drops like we have seen. It is also very gratifying!

Had one client with an interesting point of view and plan of action. This client was a few months short of their 8th year anniversary of their EIUL. They had max-funded their policy, which means making 5 annual payments and then stopping. They had not decreased their face value as of yet.

In preparing for the conversation I ran their numbers and found that they had an average interest return of 8.52%. They had remained in the original suggested option of the S&P 500. Now 8 years ago when we first set it up that was the best option and their 8.5% return suggested it had worked pretty well for them. Since the cap rates for that option have gone down significantly there are several new options added on to their policy that demonstrate better historic numbers. So we discussed changing over to one of those new options.

But, what they suggested was they had a significant amount of cash in a savings account getting a small percentage of interest and they wanted to know if they could move it over to the policy. We found they could. So they are able to leverage their policy as a safe place to put their cash and gain a much higher return. In two years they will have gotten through those 10 years of high expenses and adding in money now doesn’t increase the expenses. So it was a great place to put their money. They are getting up there in years (late 50s) and getting close to retirement so this will up the amount they can take out annually significantly.

As an aside, I tried to talk the husband into getting an index annuity a few years ago as he closed in on retiring. He wasn’t convinced at the time. He could have gotten into a product that guaranteed him 10 years of 7.5% returns every year (as long as he took it as income). Instead he has a significant amount of market risk now. This along with the virus causing him business slowdown has caused him concern. This life insurance policy is their port in the storm and I thought adding in an annuity with the 7.5% with some of their retirement would make it bulletproof.

Finally, the Covid19 virus has caused the cap rates and participation rate for the uncapped option to drop for every policy out there. This is a reaction to the economy crashing and market variance going ballistic. It was nice that none of the clients I have talked to were worried about it, and most thought as I do that once we get the economy back moving the cap rates/participation rates would go back up.

Finally, a comment on the 8.52% my client has gotten inside her policy. I regularly check these out for my long term policies and this is marginally higher than the average I have looked at. The range for long term policies seems to be 7.8% to 8.8%. Note these are actual returns, not illustrated ones.

Got some TIME on my hands……COVID19, March 27, 2020

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In the past I have been unwilling to go beyond posting about financial ideas on this blog.

But, the COVID19 panic has given me much more time to post.  So, I will post, trying to be as apolitical as possible.

The governor of Vermont (a Republican for all you who don’t know) has canceled the school year.  My son is a High School senior at a school in Vermont. He is devastated. At first when he got a 3 week vacation he was pretty happy, but now realizing he won’t get closure with his friends he is pretty upset.

So, why close schools for 3 months?  Yea, I know all about the “curve” and the modeling.

Two news items have caught my attention.

First, an Italian Medical Scientist who advised the government of Italy made a few comments on the death rate in Italy:

“According to Prof Walter Ricciardi, scientific adviser to Italy’s minister of health, the country’s mortality rate is far higher due to demographics – the nation has the second oldest population worldwide – and the manner in which hospitals record deaths.

“The age of our patients in hospitals is substantially older – the median is 67, while in China it was 46,” Prof Ricciardi says. “So essentially the age distribution of our patients is squeezed to an older age and this is substantial in increasing the lethality.”

But Prof Ricciardi added that Italy’s death rate may also appear high because of how doctors record fatalities.

“The way in which we code deaths in our country is very generous in the sense that all the people who die in hospitals with the coronavirus are deemed to be dying of the coronavirus.

“On re-evaluation by the National Institute of Health, only 12 per cent of death certificates have shown a direct causality from coronavirus, while 88 per cent of patients who have died have at least one pre-morbidity – many had two or three,” he says.”

 

The first part is mostly known.  But think about the fact that 12% of the recorded COVID19 deaths are directly from the virus?????

Here is a little personal story:

My father went into a nursing home at age 95 due to my mother being in the last stages of Breast Cancer and not being able to care for him (my mom was 21 years younger). Most people in nursing homes get few visitors. But, for the 4 years he was in a nursing home we visited him 3-4 times a week (each year we took a 1 week vacation where we couldn’t visit). Every Sunday for 3 1/2 years we went to the nursing home, loaded him into the car and went out to eat as a family.  For the last 6 months we brought him to our house on Sunday for that meal.  He had dementia, but he always knew who I was and who his only grandchild was (He called him “the boy”). He took great joy in hanging out with “the boy.” He walked without a cane or a walker right up to his death (although he was unsteady on this feet the last couple years). Several times he got infections (pretty standard for being in a nursing home) and once he ended up in the hospital for a few days. Each infection made him weaker overall.  There were some workers in the nursing home that suggested we not treat the infection. But, I resisted and instructed the doctors to treat the infection. Maybe, it was wrong, but he was still happy to see us and eat Sunday dinners with us.

An infection is what precipitated his death.  He had a UTI and the staff did not tell us or note it for a few days.  I came to visit him a couple times while he was “not feeling well.” After maybe 5-7 days of the infection, the doctor called me and told me.  Again I instructed him to treat the infection, but it was too late at this point.  He had a heart attack and then after moving to a hospital the final stroke that killed him.

What is the point of this story?  Well on his death certificate it listed MI and CVA (heart attack and stroke) as the cause of death, not the UTI.  Probably should have just listed old age.  If it was in the COVID19 age, and he tested positive, it would have been listed as a COVID19 death.

The second thing that caught my eye was the NY governor saying that they were not denying anyone ventilator care and that some were on ventilators for 2-4 weeks before dying.

Would they have put my father on a ventilator if he was positive?  I hope not, but it sure sounded like it.  My father being in a nursing home with advance directives might have protected him from this, but who knows.

Finally, Ferguson the Brit whose modeling caused much of the panic has released new modeling that moves the deaths in Britain from 500,000 (10 days ago) to less than 20,000 now.  But what caught my eye was him saying that 50% of those deaths would have happened by the end of the year without COVID19 infection because of how sick these people are.  WOW…….now we are talking about the same effect as the influenza.

So, again schools in Vermont are shut down for 3 months.  Gyms, non essential businesses, restaurants, hair cutting salons all shut down.  Stay in home orders. Economy crashed. And the modeling as it gets better data, looks like the flu.

So, I wonder what is going on in New York City that they are running out of ICU beds and ventilators.  And what about New Orleans?? Is this because they have changed their end of life medical decisions?

Just food for thought??????

Maybe all this was worth it?  Maybe not?  But we are down this road and must deal with the repercussions. Maybe the early modeling will prove to be accurate.  Maybe it will prove to be wildly pessimistic.

Protect your assets as best as you can. Deal with your states mandates as best you can. But, keep hopeful and don’t let the media panic you.

Could you have avoided the loss of savings in your 401K? March 27, 2020

Posted by shaferfinancial in Uncategorized.
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Of course. If you had read any of my blog you know you could have.
Total losses due to the stock indexes dropping 30-40% from my clients?
$0

That’s right, EIULs don’t go negative, only share in the positive movement.
I’ve written many posts on this.
Time to get off the stock market roller coaster?
Time to get another EIUL?
Time to set up your children for the future?

Think this is the last virus induced panic?

Why I prefer Minnesota Life EIULs…… August 8, 2019

Posted by shaferfinancial in Finance, mutual funds, Mutual Funds for Retirement, Retirement Income.
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I often get asked why I prefer Minnesota Life EIULs.
There are many reasons:
1. Comdex of 95, meaning it is in the top 5% of life insurers with regards to financial stability
2. Past performance is #1 among EIULs.

But there is another reason. I have included a clip from an e-mail I sent to a client today.
Obviously I have stripped any personal identifiers from it.

ML is raising the cap rate on the blended option to 15%.
It also added an uncapped low volatility S&P 500 option to the Eclipse. This was an additional option for the Orion, their latest EIUL product last year and they also added it to most of their existing EIULs at the same time even if you purchased it years ago like you did. That option will now have a 90% participation rate, meaning that you multiple what the index does times .9. This option demonstrates the highest 28 year historical returns of all the options. (Blended is #2).

Finally, I’m not sure if you are aware, but Minn. Life added a bonus onto its EIULs after year 10 several years ago. Again, they added it onto all their existing EIULs even if you bought years ago. That bonus looks at the total interest credits from the 10 years previous years and multiplies it by .01. Crudely calculated this will add about .8% onto the return at your 11 year anniversary because your overall return average is right at 8%.

So, in short, your existing policies have been improved since you bought it and are poised to take off.

I think the uncapped option with the 90% participation rate is one to consider seriously. If we have a market index break down, history suggests that we have rapid increases after that. Since you won’t share in any index downward movement, but will get the benefit of its return that can supercharge the no cap option. Usually the more dramatic the downturn, the higher the following years returns are.

The takeaway from this note to a client is that even after purchasing, Minnesota Life added on several positive options for their existing clients. Something no other company does. Another interesting take away is that this client has averaged 8% over 9 1/2 years of ownership. I find that to be about average for folks that have owned their policies over 5 years.

Minnesota Life continues to be my go to company.

Just for fun, I looked at the 10 year average return for the S&P 500 with dividends reinvested. It was 6.8%. And that doesn’t take into account the large effect that negative numbers do to your overall total cash. In this case, since there have been only 2 negative years in the last 10 (-6.3% and -.7%) the straight index hasn’t been as affected by negative numbers as it usually is, but it’s still returning 1.2% less.

But people continue to believe in 401Ks funded with mutual funds that are pushed by the Financial Planning industry. Next post will be an explanation of why.

On the Misbehavior of Elites/Corporations March 20, 2019

Posted by shaferfinancial in Finance, mutual funds, Mutual Funds for Retirement, Retirement Income, trust.
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Last month a couple of insurance companies, ones that I don’t do business with, added new EIUL products. Both of these products are examples of companies putting out products that are not only inferior to their competition, but goes against the benefits of owning an EIUL in key areas. I am always surprised when things like this happen. It’s like back in 2004 or so when I was in the mortgage business and mortgage companies started to put out the pick-a-pay mortgages with teaser rates that lasted 3 months so they could get people qualified for property they couldn’t afford. I wonder why they would do something so harmful to consumers and would give the whole industry a black eye.

But, then I remembered there are always these folks out there. Ones that are just predatory by nature. They act the way they do because they are pretty sure there will be no repercussions, just like those mortgage executives. In that whole mortgage mess, the only people who were held responsible were a few bad mortgage brokers who took advantage of the rules set up by the mortgage companies and added in outright fraud.

So, where does that leave us? For consumers, it is even more important to deal with responsible folks who have been in the business long enough to recognize the faults within the given industry. When I was in the mortgage industry, I refused to write pick-a-pay mortgages because I knew people got fixated on that teaser rate and refused to understand the total cost of the mortgage, which was higher than the conventional mortgages. I know I lost a lot of business because of it. There was nothing I could say to someone desperate to buy a house, a house way too expensive for them, that is looking at the teaser rate and thinking they will be OK with the monthly amount. They were already into a system where the real estate agent had pushed them into a mania because of rising RE prices, got them to fall in love with a house they couldn’t afford and now the mortgage broker was going to complete the financial death with a bad mortgage that would push them into foreclosure and probably bankruptcy.

Fortunately, the bad EIUL structure isn’t going to push anyone into foreclosure. But, it will give the insurance industry another black eye and give the mutual fund/Wall street industry more ammunition against good products. (another industry full of sharks with no regard for consumers)

There is never a good time for the uninformed or the naive in the financial world. What everyone must do is find an ethical guide to get between them and these large institutions we all must deal with. That in itself is problematic as the consumer has a tough time seeing the difference between a corporate shrill and someone that truly will align your needs with the guide against the large institutional forces. It’s the conundrum of our age. Institutional propaganda plus an army of sales folks aligned in saying the same thing with no place for dissent is what we all deal with. Combine this with government interest in pushing Wall Street plans and you have a mean stew for people to deal with.

Trust is in short supply in our society now as it should be. And that might be the biggest victim in all of this. How can a society function with this loss of trust with each other, our government, our large institutions?

Sorry about this negative post, but it needs to be said. Any thoughts you have are appreciated.

Been spending some time thinking about the future of investing February 27, 2019

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Over the last year I have spent time thinking about the future of investing. No one says I am a fast thinker!!!!! Going forward I am going to write some posts about that subject. Stay tuned as I start to put forward my thinking.

Short note on Bull Market August 21, 2018

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Tomorrow, August 22nd, the bull market will officially be the longest ever in history.
While this event means nothing, you have to realize the market will go down at some point in the near future. Last two downdrafts were both over 50%. Given the length and amount of this bull market, you would think that when it does happen, it will be significant.