Do rich people spend much time counting their money? Some Americans, including President Obama, must think so. From his speeches, the President appears not to like rich people very much even though he’s one of them. On more than one occasion he’s broadly characterized “millionaire and billionaires” as all owning jets, managing hedge funds, or “sitting around counting their money.”

I find the negative characterization of Americans who’ve worked hard, taken risks, and produced much to be inappropriate, untrue, and polarizing. Especially inflammatory was his statement at a town hall meeting in Reno in April: “I’m rooting for everybody to get rich. But I believe that we can’t ask everybody to sacrifice and then tell the wealthiest among us, well, you can just relax and go count your money, and don’t worry about it. We’re not going to ask anything of you.” Continue Reading »

With the recent market volatility, we have been getting a lot of questions from clients and the media about keeping cash in the portfolio. After the market crash in 2009, we started building cash funds for our retired clients in order to provide liquidity in a down market, while not taking the majority of the portfolio out of equities.

When the market drops, many get fearful about still taking distributions from their portfolio. As Rick said to Catey Hill, Smart Money magazine, continuing to take 3-4% annually from the portfolio is perfectly fine, and will practically ensure that the funds will last through a client’s lifetime.

With the recent market ups and downs, it is easy to revert back to the same feelings we all had in 2008-2009. The feeling of being out of control can become overwhelming; the fear of losing our hard-earned money in the market becomes unbearable. The “quick fix” we hear fearful clients ask for is to simply get out of stocks and go into bonds, since this will reduce the risk in their portfolios.

Mark Miller wrote an article about older investors moving away from equities and into bond portfolios. He highlights a study released by the Putnam Institute where their “experts” are saying a retiree should only have 25% of their portfolio in stocks, even though most of the research tells us to stay above 50%.

Our philosophy is to keep all of our clients, including retirees, in the stock market while having our retired clients create a cash fund that equals several years of retirement living expenses. This fund provides cash on a monthly basis, and allows the portfolio to go up and down without affecting the client’s cash withdrawals.

With the U.S. stock market’s dismal performance during the “lost decade,” return-chasing investors looking for the next best thing may think they have found it in commodities. This asset class returned around six percent annually during the past 10 years.

Usually “the next best thing” soon takes its turn becoming “the last worst thing.” Still, commodities are one of the ten asset classes I recommend all long-term investors consider for their portfolios.

Even though commodities are tangible assets like corn, coffee, or oil, you don’t invest in them by renting a warehouse and filling it with truckloads, bags, and barrels. When investment advisors refer to investing in commodities, they are actually referring to investing in commodities futures.

Don’t let the term “futures” scare you. I’m not suggesting you consider playing the futures market, risking the loss of much more than your investment by using extreme leverage. I recommend a non-leveraged investment in commodity futures.

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Traditionally, advisers have said a well-diversified retirement portfolio could throw off 4% per year in income in perpetuity; more recently, some firms have created more flexible models that let retirees take 8% or more. Catey Hill, a reporter with Smart Money, writes that now that’s in jeopardy, with some advisers recommending retirees take no more than 2% to 3%, less if they can help it. “A lot of the old rules go out the window,” says Jeff Seymour, managing director of Triangle Wealth Management in Cary, N. C.

Catey spoke with me about whether the 4% rule was dead.  I told her that not everyone is ditching the 4% rule.  “A large number of people can still use it and have a 90% confidence that they will not run out of money.” To get the best results, clients need a diversified portfolio (I recommend an equal mix of stocks, bonds and alternative investments like commodities and real estate), as well as both international and domestic stock and bond exposure.)  Read the entire article here.

Pull your hat down and hang on tight. Once again, the stock market roller coaster has left the station. One floor trader said in his 43 years he’s never seen the volatility we’ve experienced in the past two weeks. I guess 2008 was just a warm-up.

It seems clear that the posturing and bickering spectacle in Washington which resulted in kicking the deficit can down the road, followed by the Standard & Poor’s “vote of no confidence” downgrade of longer-term U.S. debt, badly frightened many investors.

Never mind that, until the recent drama, the U.S. markets were in positive territory for the year. Never mind that there seems to be no purely economic reason for the selloff. After all, corporate profits are still high, the U.S. economy is recovering (albeit more slowly than some of us would like), and consumer balance sheets are greatly improved over three years ago.

This appears to be a classic emotion-driven downturn, made worse by a breathless media that always seems to amplify the mood of the moment. History has shown that these times of panic are dangerous to long-term returns; they are fundamentally an urgent invitation to sell at a market bottom. Fearful investors are strongly tempted to give up their seats on the roller coaster to somebody with a clearer head and stronger nerves.

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In a New York Daily News article today, Jean Chatzky writes that the latest research finds “that couples aren’t seeing eye-to-eye on retirement issues: One-third don’t know where they plan to retire, two-thirds don’t agree on their expected retirement ages, and nearly half don’t agree on whether they’ll continue to work in retirement.”

Rick talked with Jean about an exercise he has couples complete that helps them envison what a day or a week in retirement looks like.  Ideally, he has couples complete this exercise independently several years prior to actually retiering, which gives them a chance to get on the same page. You can read the entire article here.

If I had high blood pressure, I would have to give up listening to Sunday morning news shows. I’ve never figured out how politicians can so convincingly weave false information and partial truths into spin that they deliver with a straight face.

One of the more popular partial truths is that 47% of Americans don’t pay taxes. While it is true that they don’t pay federal income taxes, they do pay Social Security and Medicare taxes on their wages. They also pay sales taxes, gas taxes, property taxes, and a host of other taxes.

It is also true that the top 1% of wage earners pay 38% of all federal income taxes. Yet income taxes account for about half of the revenue raised by the federal government. A large portion of federal revenues come from Social Security, Medicare, and unemployment insurance taxes. The bottom 90% of wage earners pay the bulk of the Social Security taxes, which apply on the first $106,800 of wages. Continue Reading »

Based on the number of calls I am receiving from worried clients, I am guessing most of you are feeling some concern regarding the steep slide in the market.  The stock market has now corrected over 10% from its recent high.  This happened because of today’s 500 point drop.

Market crashes are normal.  Volatility in markets is normal.  Markets are irrational.

Volatility is the price a market investor pays for the possibility of a return greater than the 1% return a safe and secure savings account will earn. Nothing fundamental with the companies you own has changed from two weeks ago when the markets were higher.  What has changed is that people are feeling fear and trying to calm the anxiety they are feeling by “getting out.”  It’s predictably irrational. Continue Reading »

We’re pleased to feature a guest post from Tom Simmons, a partner with the Rapid City law firm of Gunderson, Palmer, Nelson & Ashmore, LLP.

Most persons familiar with the basic rules of Medicaid eligibility (the means-tested program which pays for about 50% of all long-term care costs in the country) understand that gifts can trigger ineligibility consequences.  The rule is contained with a “5 year look-back” provision.  The look-back rule states that any gift made within 5 years of an application for Medicaid benefits results in a divestment penalty.  The penalty is a period of ineligibility for Medicaid benefits when the individual would otherwise qualify.

The larger the gift, the lengthier the penalty.  The calculation is based on the “divestment penalty divisor” and the precise amount is adjusted annually.  Currently, it is $5,204.17 in South Dakota.  This amount is what the State Medicaid Agency calculates to be the current average monthly cost of nursing home care within the state.  So for every $5,204.17 in assets gifted within 5 years of a Medicaid application, the individual is deemed ineligible for one month.  So, for example, a gift of $53,000 four years ago would result in a period of Medicaid ineligibility of about 10 months, measured from the date the applicant is sufficiently impoverished to otherwise qualify for Medicaid. Continue Reading »