Exchanging Your Life Insurance to boost retirement savings

With the knowledge that as many as 9/10 permanent life insurance policies never end up with the death benefit being paid, in retirement every person should re-evaluate their insurance needs.  Aside from canceling the life insurance policy to save on premium expenses there are additional options available from companies like Sable Life who offer a Life Insurance Policy Exchange option as a reasonable alternative.  Policy owners can exchange their life insurance for a cash lump sum, a retained benefit or convert the value of their policies into an annuity providing lifetime additional income.

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Demographic Trends Indicate Investing in the United States Stock Market is a Bad Idea

An investment in the Japanese stock market has been a losing proposition since 1989.  Slowly but surely the Nikkei has fallen over time.  The problem with Japan is the lack of growth in earners/spenders in their economy.    Here is a breakdown of the number in billions of residents in three separate age groups in 1990, 2000 and 2010

Japan Age  # people
1990 15-29 27
30-44 27
45-59 25
2000 15-29 25
30-44 24
45-59 28
2010 15-29 20
30-44 26
45-59 24

We can see that across all three age groups, 15-29 (young earners), 30-44 (middle income earners), and 45-59 (peak income earners), there is relatively the same amount of residents.  If we look out ten and twenty years, in order for an economy to be robust, there has to be many more people in each of the bottom two tiers than the top tier.  The reason for this is as folks move from one tier to the next, they earn and spend more.  Over time, if each tier group is simply being replaced with the same number of people, the economy stagnates.

Lets take a look at the same age brackets in the United States starting in 1980.

United States Age  # people
1980 15-29 62
30-44 43
45-59 34
1990 15-29 58
30-44 60
45-59 35
2000 15-29 60
30-44 65
45-59 51
2010 15-29 65
30-44 61
45-59 65

Notice in 1980 the United States had 62 Billion in the first tier, 43 in the second tier and 35 in the third tier.  This demographic profile is conducive to growth.  As the 62 Billion people moved up the age tiers, they earned/spent more, and the economy grew because they were replacing only 43 Billion people in the next tier.  In 1990, the situation was still good, with 58, 60, and 35 Billion respectively in the three age tiers.  There were 60 Billion people replacing 35 Billion in the next age tier.  So, many more people were moving from the middle tier to the top earning/spending tier, which again, was good for growth. The 1980s and 1990s were boom years in the stock market, and this was all due to a positive setup in demographics.

But then it all changed in 2000.  The population was aging and although there were more people in the middle tier than the third tier, it wasnt enough to help the economy on its upward trajectory.  If we look at the United States demographic profile of these three tiers in 2010, it is exactly like Japans has been since 1990 with all three tiers relatively equal.

What this means is, the United States stock market will likely see stagnation with many boom and bust cycles for decades to come until the demographic trends shift.  We have already seen a gyration in the stock market since 2000 where it has not provided any growth.

So where can you invest in order to make money over the long term?  Here is the same information for 8  countries that have ETFs/mutual funds available for investment.

 

Russia Germany China Brazil Vietnam S. Africa Mexico Turkey
AGE
15-29 32 14 327 51 26 16 30 21
30-44 30 17 333 44 20 9 24 17
45-59 32 18 259 31 13 6 15 12

As we can see, Russia is in the same exact demographic situation as Japan and the United States.  Germany is in for a disastrous situation.  Therefore, stay away from investing in Germany and Russia.  China looks okay.  The rest of the countries on this list look fabulous.  The conclusion is it might be a good idea to begin overweighting  investments in countries that have positive demographic trends for economic growth.

Note: All information was taken from U.S. Census Bureau and was rounded.

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Saratoga Handicapping Tips

For horse players, the Saratoga meet marks the beginning of the real racing season.  The Saratoga meet features the best horses in the country competing at a venue that is turning 150 years old next year.  Here is a little known fact.  The term upset is used to describe a shocking win where a big underdog beats a favorite.   This term stemmed from a horse named Upset beating who is considered to be the greatest thoroughbred ever, Man O War.  Man O War was 20 for 21 lifetime, and the only loss was to Upset.

Here are an experts tips for betting Saratoga:

1. Speed on the dirt dominates the meet.  There are very few horses that win from far back on the dirt, and most horses that go to the lead on turf make it into the trifecta.  In the first two racing days last year, 17 out of 21 horses that went to the lead were in the trifecta.

2. Horses that ran in Kentucky their last race perform terribly.

3. Most shippers from all other East coast tracks are only good enough to win cheaper claiming races.  If a horse is shipping in from Monmouth, Parx or other East coast tracks, they are not good enough to win an alowance or stakes race.  This is assuming they have run more than one race at those tracks.

4. If a horse is in the 1, 2, or 3 gate on the turf and does not have the speed to be first or second down the backside, the horse will usually get blocked on the far turn and lose all chance of winning.

5. If a horse is coming off a layoff of more than 60 days, he has very little chance of winning.

6.  Long shots rarely win on the dirt.  Long shots occasionally win on turf, but that is due to favorites running into traffic on the far turn.

7.  David Cohen is an excellent long shot speed rider.  If he is on a speed horse, he is a solid bet.

Enjoy the best horse racing meet of the year!

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The Law of Attraction Tip

There are hundreds of books about the law of attraction.  I have read about a  dozen of them including The Secret, Think and Grow Rich, multiple Wayne Dyer books, and The Law of Attraction by Jerry and Esther Hicks.  The basic concept of all the books is simple.  Your thoughts create the life that you are living.

The fascinating thing about this topic is it cannot be proven or unproven. It does make a lot of sense.  I know a lot of people who worry about things all the time.  For instance, my sister has always worried about having car problems.  Well, guess what?  She has had more car problems than anyone else I have ever met.

When I was younger I was always sick.  There wasnt a school year I completed where I wasnt out sick at least 25 days.  I was so used to being sick, I carried that negative thought process with me into my 20s.  I would always think to myself, well, it is getting cold outside, I will be getting sick soon.  As you wish said the universe.  Within a week of me having that thought, I was sick.  The funny thing is, about 6 or 7 years ago, I stopped believing in sickness.  Sure enough, I might have had one minor cold in that time frame.

For some reason, our minds are trained to think from a negative, worrying slant –  Dont  do this or something bad will happen.  It seems to be very difficult to think from a positive slant.  How many times do we say, If I do this, something great will happen!?  Think about it.  Over the next day, think about how many times you have worried about something, or thought that something bad will happen if you do or dont do something.

In The Law of Attraction by Jerry and Esther Hicks, one suggestion they make is to tell yourself hour by hour that things will be great.  For instance, when you wake up in the morning say, I am going to have a wonderful, tasty breakfast and a nice, warm, relaxing shower.  Then when you get into your car to go to work, say, I am going to have a smooth ride to work and will hear my favorite music on the radio.   On a personal note, simply writing those two statements made me feel good!

With all the bad news that is thrown at us on t.v. and all the bad things that seem to happen on a daily basis in our lives and the lives of others, it is extremely difficult to have a positive mindset.  But if we take it one hour at a time, we should be able to change this and start to think from a positive point of view.  Thinking from a positive point view will bring positive things into our lives.  Give it a try.  All it takes is some thinking.

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Rental Car Reservations Not Guaranteed

In my view a reservation that is not guaranteed defines an oxymoron.  If I reserve something, doesnt that mean I should expect it to be available when I arrive to pick it up?  A few days ago I arrived at Payless Car Rental.  The night before I arrived at Payless, I  reserved a car for two days via their website.  I live near an airport and it is about a 20 minute walk for me to the rental car place.  Payless is located off the airport.

I arrived at the counter and gave the attendant my name.  He said, HMMM, sorry, we dont have any more vehicles left.  I told him I reserved a car online.  He looked up the reservation and said, Sorry, our reservations are not guaranteed.  It reminded me of the Seinfeld episode where this exact situation happened.  He then told me there were four other reservations made after mine, and he had no cars available for them either.

In disgust I walked out of the rental car place.  I then stopped and went back in.  I asked for the regional managers name and number and the representatives direct managers number.   He then said, wait a moment, I will see what I can do.  He began to call the other rental car companies that were at the airport.   The first two companies he called did not have any vehicles either.  Finally, he found a vehicle for me, which was double the price of the vehicle I reserved through Payless.  I told him that was unacceptable and I still wanted to talk with the regional manager.

He then said, I will pay for half the car rental fee.  He gave me cash and also offered me a ride to the airport to pick up the car, considering I walked to this facility.  It was an excellent customer service gesture in response to a bad situation.  I commend the employee for what he did.  However, if you ever rent a car, it probably behooves you to call them to make sure your reservation actually means something!

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Possibly the Greatest Mutual Fund of All

If I asked you what mutual fund returned over 9% per year on average over the last 10 years, what would you guess?  If I told you it isnt a stock fund, would you be surprised? If I told you that this same fund had a higher return than the S&P 500 from 1991 2010, would you be shocked?  Not only has this mutual fund outperformed the S&P 500, but it does so with less risk.  This fund is The Fidelity High Income Fund (SPHIX).  From 2000 to 2010 an investment in an S&P 500 index fund returned only 3.6%, while an investment in The Fidelity High Income Fund returned 78.5%.  From 1991 2010, the S&P 500 index fund returned 557% while the Fidelity High Income fund returned 646%.

What does the Fidelity High Income fund invest in?  It invests in lower quality bonds, also known as junk bonds.  Companies that dont have good balance sheets or have unfavorable earnings expectations issue junk bonds.  They are considered lower quality because there is a greater chance that the company will not pay back its bondholders.  Investing in junk bonds is risky business.  That is where the mutual fund manager comes in.  Even in the worst of times, junk bonds default less than 15% of the time, so it is up to the manager to choose from the bonds of the 85% that dont default.

Companies that issue lower quality bonds have a better chance of paying back investors if the economy is growing.  When the economy is doing well, the stock market does well.  Therefore, when the stock market does well, the High Income Bond Fund will do well.  Generally bond funds do the opposite of stock funds.  That is where the High Income fund is unique.  It goes up when the stock market goes up, and goes down when the stock market goes down.  The greatest benefit of the High Income Fund is it is always getting interest payments from the bonds that are owned by the fund.  Therefore if the economy tanks, and the stock market falls, even though the fund will drop, the drop will be mitigated by the interest that is being received from the bonds.

Everyone should own bond funds in their 401k.  It doesnt matter how old or young you are.  We all learned this as a valuable lesson over the last 10 years, where the stock market has gone nowhere. If you want a fund that can provide excellent returns when the economy grows and have some downside protection when the economy is doing poorly, consider a junk bond fund such as Fidelity High Income (SPHIX).

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