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A
bank is a place that will lend you money if you can prove
that you don't need it.
-Bob Hope
The Markets
The Fed
cut rates 0.25% on Wednesday which should help to ease the
credit crisis but failed to provide guidance that included
an inflation fighting
strategy.
At
Wednesday’s
intraday high the Dow Jones Industrial were back above
13,000, the S&P 500 exceeded 1,400 and the NASADQ Composite
was above 2,450. Those were all highs since the start of
2008. Excluding financial stocks the earnings results have
been mostly favorable and traders are looking past the
current economic weakness toward the end of this year,
when they expect a recovery will be underway.
First-quarter earnings have
so far been mixed, with Standard & Poors
estimating reported earnings per share to fall roughly 30
percent compared to the same quarter in 2007. An equivalent
fall would see the S&P 500 index at 1100. Even if the
Dow by comparison suffered only a 20 percent fall, that would
take it as low as 11000. Also bear in mind that falling employment
is likely to have an increasing impact on consumption and
corporate earnings over the next few quarters.
Dow Retraces
50% of Drop
This week’s rally in
the Dow Jones Industrial Average has pushed it to a level
of interest. At 12,916 the
Dow recovers
half of the drop it saw between the high of 14,198 on Oct.
7 and the low of 11,635 on Jan. 22. To many, this of course
is a 50% Fibonacci retracement, which is often characterized
as a fairly normal consolidation, albeit a hefty one. A breach
of the 50% retracement is seen by many as invalidating the
prior low and indicating a move back to the highs.
A 61.8%
retracement is seen as a far stronger signal of a reversal,
with few participants left clinging to the prior
trend. This means that in order for market participants
to feel more confident about the chances for a move back
to
14,198, a 61.8% retracement is necessary. That level is
at 13,219.
The fundamental factors that
would cause a breach of 13,219 are not in place, although
many will be willing
to take a
leap of faith about a turn, particularly because of the
fiscal stimulus that began to reach the economy today via
tax-rebate
disbursements to about 800,000 households. By the end of
the week roughly 8 million people will have received tax
rebates electronically (the first physical checks will
be mailed a week later). Still, until it becomes clear that
the checks are going toward more than just inflation, a
breach
of 13,219 will likely be difficult. Only time will tell. Why do they say "SELL IN
MAY AND WALK AWAY"?
The stock market is about to enter what
has historically been the weakest half of the year. The
chart below illustrates that investing in the S&P 500
during the six months of November through April accounted
for the
vast majority of S&P 500 gains since 1950. While the
May through October period has seen mild gains during major
bull markets (i.e. 1950-56 & 1982-97), the overall out
performance during the months of November through April is
nevertheless compelling. Hence the saying, “sell in
May and walk away.”
| Returns through 4/25/08 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Dow Jones Industrials |
0.3 |
-2.8 |
-1.8 |
8.0 |
9.2 |
3.8 |
| Nasdaq Composite |
0.8 |
-8.7 |
-5.3 |
7.5 |
11.1 |
2.9 |
| Standard & Poor's 500 |
0.5 |
-4.8 |
-6.4 |
6.4 |
9.2 |
2.6 |
Source: Yahoo! Finance, Barrons
Past performance is no guarantee of future results. Indices
are unmanaged and cannot be invested into directly. Three-,
5-, and 10-year returns are annualized. Assumes dividends
are not reinvested.
A LIFE INSURANCE PRIMER
Whether you want to replace
your income for your family in the event you should die
young or help preserve an inheritance
for your heirs, life insurance can serve as the cornerstone
of a sound financial plan. While life insurance can help
you protect your dependents or others with whom you share
your life, it can also serve as a key component of succession
planning by protecting a buy-sell agreement or further
your charitable giving program.
Just as the uses for life
insurance are diverse, so, too, is the range of products
and policy riders from which you
can choose. In fact, because life insurance products are
now introduced and revised at an alarmingly fast pace, it’s
difficult to stay on top of what the industry has to offer.
An industry in flux combined with the complicated nature
of the product can make the process of choosing insurance
seem overwhelming. Understandably, rather than dive in and
discover the benefits to each type of coverage, many consumers
put off their analysis and the purchase of life insurance,
leaving those they love unprotected. In order to make the
best choice for your family, you need to understand the
differences between your life insurance options.
First, you
should know that there are two major types of life insurance: term
life insurance and whole (or permanent)
life insurance. As the names imply, term life insurance
covers you for a set period of time while whole life offers
coverage for your entire life. Let’s look at each
type in a little more detail:
Term Life Insurance
As you might expect, there are
a variety of term policies from which to choose. Payment
is received only if death
occurs during the term of the policy so consumers choose
a period of time, generally from one to 30 years, when
they most need protection. Some choose to insure themselves
for the life of a mortgage while others want protection for
the number of years they will have dependent children.
According to the Insurance Information Institute (III), the
most popular type of term insurance is 20-year term.
Although there
are two basic types of term life insurance
policies, level term and decreasing term, level term is
by far the most popular, according to the III. That’s
because the death benefit stays the same throughout the
duration of the policy, rather than dropping, usually in
one-year increments, over the course of the term.
How much
does a term life insurance policy cost? According to a September
26, 2007, press release from III, generally,
the premium for the policy is based on both your age and
your health at the policy’s start. As an example,
however, the III estimates that the annual premium for a
40-year-old male nonsmoker buying a $500,000 20-year level
term life insurance policy in 2008 will be about $725 if
he qualifies as a “standard” risk and $350 if
he meets the more stringent requirements of a “preferred” risk.
Rates for women and younger people would be lower. For example,
the comparable rate for a 40-year-old female nonsmoker would
be about $600 for a standard risk and $300 for a preferred
risk.
Of course, there’s plenty more industry jargon to
mystify you when you are comparison shopping. If a policy
is “renewable,” you can choose to keep it in
force for an additional term or terms, up to a specified
age, even if changes in your health would cause you to be
rejected if you were a new life insurance applicant. Sometimes
the premium remains the same, or “level,” for
the length of the term. Other policies permit the insurance
company to raise the rate during the course of the policy’s
term. So, for example, if you buy a 5-year renewable term
policy, it could be level for 5 years, then change to a
new rate reflecting your new age, and so on every five years.
If
you purchase a “convertible” policy, you
have the right to change it into a permanent type of life
insurance without additional health exams. Finally, some
newer term policies feature a “return of premium” option.
As you might expect, the premiums for coverage with this
feature are much higher than for policies without the guarantee.
Whole
Life/Permanent Insurance
Whole life, or permanent, insurance
pays a death benefit when you die, whether it’s next month or one hundred
years from now. There is also a savings element attached
to these policies that can grow on a tax-deferred basis.
Note that when the savings element reaches a certain amount,
it must be available to you as “cash value” in
the event you decide not to continue with the original policy.
Because of the potential for the savings element to grow
over time, premiums are generally higher for permanent than
for term insurance. However, the premiums remain the same
while term coverage has the potential to increase substantially
every time you renew it.
There are also a number of options
to choose from under the umbrella of whole life insurance,
including traditional
whole life, universal life, variable life, and variable
universal life insurance.
With traditional whole life
insurance, both the death benefit and the premium are designed
to stay the same (level) throughout
the life of the policy. And, naturally, the cost per $1,000
of benefit increases as the insured person ages. The III
estimates that at current interest rates, a life insurance
company will pay a $500,000 death benefit to a survivor
as an income of about $3,300 a month for 20 years. In
the 1970s and 1980s, life insurance companies introduced
variations on the traditional whole life product. One of these products
is universal, or adjustable, life insurance.
Universal
life insurance offers you more flexibility than
whole life insurance. You may be able to increase the
death benefit if you pass a medical examination. The savings vehicle
(called a cash value account) generally earns a money
market
rate of interest. After money has accumulated in your
account, you will also have the option of altering your premium
payments – providing
there is enough money in your account to cover the costs.
If you’ve yet to purchase life insurance,
you are not alone. According to the III, about 70 million American
adults have no life insurance. With the Institute foreseeing
a continued downward trend in life insurance premiums, which
began a little more than 10 years ago, now may be the ideal
time to purchase coverage.
According to the Institute, life
insurance rates continue
to drop because death rates for the 25-44 age group – the
primary age range for purchasing life insurance – have
decreased significantly. Data the Institute obtained from
the National Vital Statistics Reports indicates that in
1996 the death rate per 100,000 for people ages 25-44 was
177.8; by 2004 it had dropped roughly 10% to 161.8. Additionally,
life insurers have also profited in recent years from generally
favorable investment and interest rate environments, and
they are passing these savings along to consumers.
Please
contact us with questions or to discuss your unique life
insurance needs.
Ben Franklin is famous for the wisdom of
the proverbs he wrote for Poor Richard’s Almanac. See
if you can finish these:
1. Fools multiply _____.
2. Be slow in choosing
a friend, slower in _______.
3. Three may keep a secret, if
two of them are _______.
4. _____ and ______ stink in three
days.
5. None _________ better than the ant, and she says nothing.
6.
Well done is better than well ____.
7. Thou canst not joke an
_____ into a _______; but thou may’st a friend into an
enemy.
8. Fear not death; for the sooner we die, the longer
shall we be ____.
Click here for the answers.
Thanks for your trust & confidence,
P.S. DON'T KEEP US A SECRET! At Ford Wealth Management we know that referrals from your friends, family and colleagues are the sincerest form of flattery. We appreciate your business and hope that you will pass along our name and number to anyone who would benefit from our services.
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