• Long Term Care Insurance – Financially Wise but Current Options are Less Than Ideal by John Hunter – “The questions about long term care insurance are not about the sensibility of the coverage abstractly, it is very wise. But the complexities, today, in the real world make the question of buying more a guess about what coverage you will actually receive if you need it.”
• Figuring Out The Real Price Of College by Jacob Goldstein – “For the current school year, the average sticker price for tuition and fees at a private, nonprofit college is $28,500, according to a report from the College Board.

  The average price students actually pay is less than half that — $12,970. That’s almost identical to the $12,650 that students paid, on average, in the 2001-2002 school year. (These are inflation-adjusted dollars.) Of course, this is just the average. What students actually pay varies wildly.”



Marina Bay Sands Casino, Singapore. Singapore added their first two casinos in 2010 and have already the 2nd most gambling revenue of any area: after Macau and ahead of Las Vegas.

• The Philippines Astounds the Skeptics by Bruce Einhorn – “Much of the credit for the good feeling should go to Aquino and his efforts to tackle corruption and improve the country’s infrastructure… As wages rise in China, the Philippines has a chance to attract investment from companies looking for low-wage alternatives, but the country’s notorious culture of bribery remains a major obstacle to growth”
• Periodic Table Of Dividend Champions by David Van Knapp – the post looks at the 105 stocks raising dividends 25 straight years and looking at current yield and dividend growth rate highlights 34 for further study by an investor “Similarly, some investors may be interested in stocks that have a low current yield coupled with a high rate of dividend growth.”
• Why You Should Teach Your Kids Personal Finance Now – “We all want the best for our kids, and although our focus is generally on getting them into a good school and insuring their health, parents also need to take the time to focus on proper financial education. Not only with teaching proper finance skills keep your kids from becoming a consumer debt statistic, but it will also allow them to achieve their future financial goals more easily.”
• Canada’s only experiment in guaranteed income – “For a four-year period in the ’70s, the poorest families in Dauphin, Manitoba, were granted a guaranteed minimum income by the federal and provincial governments… Only two segments of Dauphin’s labour force worked less as a result of Mincome—new mothers and teenagers. Mothers with newborns stopped working because they wanted to stay at home longer with their babies. And teenagers worked less because they weren’t under as much pressure to support their families.”
• Why France Has So Many 49-Employee Companies by Gregory Viscusi and Mark Deen – “Once a company has at least 50 employees inside France, management must create three worker councils, introduce profit sharing, and submit restructuring plans to the councils if the company decides to fire workers for economic reasons… The cost of labor isn’t the main problem, it’s the rigidities… With 2.9 million people out of work—the worst joblessness in 12 years—France may need to overhaul its rigid labor laws.”

Related: Investing dictionary – personal finance articles and books

The questions about long term care insurance are not about the sensibility of the coverage abstractly, it is very wise. But the complexities, today, in the real world make the question of buying more a guess about what coverage you will actually receive if you need it.

Many of my posts here are focused on the USA but applicable elsewhere, or just applicable wherever you are. This post is mainly focused on the USA, long term care insurance options in other locations will be very different and have different considerations (in many countries it may not even apply, mainly due to a less broken health care system than the USA has).

Long-Term-Care Insurance: Who Needs It? by Marilyn Geewax

Insurance has a transaction cost. Paying that transaction cost for expenses you can afford is just waste. You should pay the cost directly. This is why higher deductibles are most often wise. It doesn’t make sense to cover pay insurance costs every year to pay for a $500 risk you can afford to absorb yourself.

But huge expenses are exactly what you want coverage for. Long term care expenses are huge. However, long term care insurance is still in flux, which isn’t good for something you want to provide long term protection. A huge risk is paying premiums for years, and then getting hit with rate hikes that may well be designed primarily just to get people to drop coverage (or be so expensive that those that stay pay enough that the insurance company makes money).

Ideally such insurance would be set so maybe the cost rose at some preset limit when you signed up. The problem is the USA health care system is so broken this won’t work. No one can predict how much more excessively expensive long term coverage will be in 30 years so the insurance companies can’t predict. It leaves consumers in a risky place.

Insurance is regulated by the states. There are huge differences in which states do a good job regulating long term care insurance and those that don’t. The majority don’t.

This is one of the more important areas of personal finance. Unfortunately there is no easy answer. If the system were stable, reliable and predictable, long term care insurance would be a definite requirement for a sound financial plan. Today it is wise to insure yourself from those risks, the problem is determining whether any of the options available are worth it. The risk of needing this insurance is high: it is both likely and costly. So getting coverage is definitely wise if you can find some you think is reliable over the long term. Because of the uncertain nature of the options, this will require much more effort on your part than many personal finance actions (I included several links below to help your research).

Also look at how long the coverage is for. This is another limitation insurance companies have put in place that makes it much less worthwhile.

Related: Personal Finance Basics: Long-term Care Insurance – National Clearinghouse for Long-Term Care Information – AARP advice – Disability Insurance is Very Important – How to Protect Your Financial Health

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Nuclear power provided 14% of the world’s electricity in 2010. Wind power capacity increased 233% Worldwide from 2005 2010, to a total of 2.5% of global electricity needs. Nuclear power generation declined by .72% for the same period.

Burning coal was responsible for 41% of electricity generation in 2010. Burning natural gas accounted for 21% and hydroelectric generation accounted for 15%.

Japan just announced that they have closed their last operating nuclear power plant. They have no nuclear power plant generating electricity for the first time in more than 40 years. It will be interesting to see how low their actual generation totals fall this year. They plan to re-open some of the plants but it is a political issue that is far from settled.

Globally nuclear power production increased 84% from 1985 to 2010. This is a very low percentage. Global output over that period increased much more than that, as did global electricity use. The share of electricity production provided by nuclear power peaked at about 17% for much of the 1990s.

Related: Nuclear Power Production Globally from 1985 to 2009 – Oil Production by Country 1999-2009 – Top 10 Countries for Manufacturing Production from 1980 to 2010: China, USA, Japan, Germany… – Japan to Add Personal Solar Subsidies – Nuclear Energy Institute (statistics)

Another view of data on nuclear power shows which of the leading nuclear producing countries have the largest percentages of their electrical generating capacity provided by nuclear power plants (as of 2009). France has 75% of all electricity generated from nuclear power. Ukraine had the second largest percentage at 49%, then Sweden at 37% and South Korea at 35%. Japan is at 28% compared to 20% for the USA. Russia was at 18% and China was at just 2%.

• Hospital of Cards by Andrew Foy, MD – “For some perspective on the magnitude of the healthcare bubble consider that from 1990 to 2007 the cost of all items, as measured by the Bureau of Labor Statistics (BLS), rose by 159 percent while housing rose 163 percent and medical care rose a staggering 216 percent. A recent study by the Kaiser Family Foundation found that between 1999 and 2011, health-insurance premiums increased 168 percent while workers’ total earnings increased only 50 percent. Over that same time period, government spending on healthcare increased 240 percent while GDP increased 62 percent. The BLS reported that over the last 50 years, the percent of workers employed in private-sector healthcare has gone from 3 percent to over 11 percent and employment has continued to grow throughout the current recession.”
• Apple’s Earning are Again Great, Significantly Exceeding High Expectations by John Hunter – Apple posted quarterly quarterly net profit of $11.6 billion (an increase of 94% in net income)… Apple’s Gross margin was 47.4% (the best ever) compared to 41.4% in the year-ago quarter. International sales accounted for 64% of the quarter’s revenue…
• Demand for Rental Units Could Disrupt Fed by Kathleen Madigan – “The supply among rental housing is the tightest in more than a decade as only 8.8% of units were vacant in the first quarter. And given the steep fall in homeownership rates in the U.S., the demand for rental units is the highest in 15 years.”
• 5 Reasons Why Dividend Investing Rocks – “Dividend investors always look for high and sustainable dividend growth and any stock that decides to slow that down or even stop growing the dividend entirely raises red flags.”
• Start Your Own Home Business by Laura Adams – “That’s exactly what happened to Donna, who I interviewed about her 6-figure home-based business with Avon. It only took her a year and a half to replace the income she was making and work from home full time.”
• Indonesia Chases China As Middle-Class Consumption Soars by William Mellor and Femi Adi – “While he couldn’t save his stores — all four were looted to the last light bulb — Susanto was on hand to seize an opportunity that would make him a billionaire…
  More than 1,100 people died in the 1998 riots, and the economy contracted 13 percent that year… In October 1999, barely a year after the riots, Susanto opened the first of what’s now a chain of 6,000 stores called Alfamarts.” [successfully implementing the “The time to buy is when there’s blood in the streets” is not easy and it doesn’t always work, but the returns when it does can be huge. – John
• The huge bank problem (bigger than Spain) that nobody is talking about by Jim Jubak – “I think there’s enough wiggle room in the banking system and in China’s state finances to let the country and its banking system get through this round of problems. But the likely solutions just store up problems for the future. (Sound familiar? Europe? The United States? Japan?)”
• 5 unusual, yet effective ways to save money by Nathan Brown – “Switch Your Bank to a Credit Union… Who knew you can find a plethora of useful services at your local library. You can borrow books, magazines…”

Apple sold 35.1 million iPhones in the quarter, 88% unit growth over the year-ago quarter. Apple sold 11.8 million iPads during the quarter, a 151% unit increase over the year-ago quarter. And they sold 4 million Macs during the quarter, a 7% unit increase over the year-ago quarter. Apple sold 7.7 million iPods, a 15% unit decline from the year-ago quarter.

“Our record March quarter results drove $14 billion in cash flow from operations,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the third fiscal quarter, we expect revenue of about $34 billion and diluted earnings per share of about $8.68.” Don’t be surprised to see Apple significantly beat these numbers, they usually provide “estimates” that are far bellow what results turn out to be.

Apple built their cash stockpile to over $110 billion. Even paying the dividend that they have announced, they are going to be building their cash stockpile going forward without some amazingly large purchases. The announced dividend will cost Apple about $10 billion annually. I wish Apple would increase the dividend. They have also announced a plan to repurchase about $10 billion in stock starting in about 6 months. That would be a huge commitment for most companies, for Apple it seems to be about 2 months of cash the business will generate. I worry they will make foolish purchases just because having that much sitting in the bank makes it so easy.

The results are again fantastic. Apple’s stock price, relative to earnings, continues to be very reasonable (even cheap). Increases in the stock price have been more than outpaced by profit growth. It does seems profit growth has to slow, and likely dramatically (of course it seemed incredibly unreasonable to expect increases of even 33% of what Apple has done in the last 3 years). The stock price is not expensive, even if earnings growth collapsed, which it isn’t expected to do in the next year. On fundamental factors the stock remains very attractive.

The biggest risk is that when so much has gone so right for Apple for so long aren’t they poised to suffer some major setbacks? I can accept the case for a dramatic slowing in earning for the iPhone, which is their primary driver of earnings. It is hardly certain but there is this potential. I don’t foresee significant actual declines (earning less in 2013 than 2012, for example). But even assuming no growth in iPhone profits from 2013 to 2016 at this price Apple seems to be a good investment (and few expect no growth for iPhone earning for that period). iPhone sales now account for 58% of Apple’s revenue; three years ago, they totaled 27% of revenue.

Other areas should be strong in 2012, 2013 and beyond: iPads, Macs, iTunes and App sales. And everyone is expecting some huge new product or products. The leading candidate is a new Apple TV that actually makes a big move into the market. The stock price doesn’t even need some big new product but if it comes that is just more reason to be positive on Apple as an investment.

I don’t see any signs of troubles brewing. The only reason to be nervous is that it seems crazy that such extraordinary success on such a huge scale can continue. That can explain being nervous but it doesn’t justify missing out on this attractive investment.

Related: Apple’s Impossibly Good Quarter – The Economy is Weak and Prospects May be Grim, But Many Companies Have Rosy Prospects (Sept 2011) – Leadership quotes from Steve Jobs – Intel Reports Their Best Quarter Ever (March 2010) – 12 stocks for 10 years portfolio

Of course the details are much much more complicated. But without understanding any of the details you can do what is the minimum you need to do – save 10% for retirement of all your income. See my retirement investing related posts for more details. Only if you actually understand all the details and have a good explanation for exactly why your financial situation allows less than 10% of income to be saved for retirement every year after age 25 should feel comfortable doing so.

There is value in the simple rules, when you know they are vast oversimplifications. I am amazed how many professionals don’t understand how oversimplified the rules of thumb are.

Here is one thing I see ignored nearly universally. I am sure some professions don’t but most do. If you have retirement assest such as a pension or social security (something that functions as an annuity, or an actually annuity) that is often a hugely important part of your retirement portfolio. Yet many don’t consider this when setting asset allocations in retirement. That is a mistake, in my opinion.

A reliable annuity is most like a bond (for asset allocation purposes). Lets look at an example for if you have $1,500 a month from a pension or social security and $500,000 in other financial assets. $1,500 * 12 gives $18,000 in annual income.

To get $18,000 in income from an bond/CD… yielding 3% you need $600,000. That means, at 3%, $600,000 yields $18,000 a year.

Ignoring this financial asset worth the equivalent of $600,000 when considering how to invest you $500,000 is a big mistake. Granted, I believe the advice is often too biased toward bonds in the first place (so reducing that allocation sounds good to me). To me it doesn’t make sense to invest that $500,000 the same way as someone else that didn’t have that $18,000 annuity is a mistake.

I also don’t think it makes sense to just say well I have $1,100,000 and I want to be %50 in bonds and 50% in stocks so I have “$600,000 in bonds now” (not really after all…) so the $500,000 should all be in stocks. Ignoring the annuity value is a mistake but I don’t think it is as simple as just treating it as though it were the equivalent amount actually invested.

Related: Immediate Annuities – Managing Retirement Investment Risks – How to Protect Your Financial Health – Many Retirees Face Prospect of Outliving Savings

There are many other factors that need to be considered to determine the right allocation. But I would be much happier saying ok we have $600,000 of equivalent assets to start with now we have $500,000 – lets go to $350,000 in stocks, $50,000 in cash and $100,000 in dividend stocks (in todays market – as a alternative to bonds). I wouldn’t mind having the $100,000 in bonds in another market.

I could also see having less in stocks for other reason (based on the many other aspects of the portfolio and personal financial situation). But don’t just ignore what level of annuity income is part of the financial portfolio.

Those paying attention will note that interest rates have a great affect on the equivalent bond amount. If rates were 5% the equivalent amount would be $360,000. This huge difference in “bond value” is one reason why bonds are so risky as an investment now. Rates increasing from incredibly low level lik 2 or 3% will drastically reduce the value of those assets. Owning assets that drastically decrease is not wise.

This view is oversimplified too. If you owned bonds with a short duration (say 3 years) you would not experience a loss of $240,000. That is a topic for another post. Basically the example is only looking at income replacement not capital – which doesn’t give a complete picture at all. The basic point to remember here, about bonds, is that long term bonds are very dangerous when interest rates are low. The idea that bonds are safe is misleading. As part of a portfolio that view can make sense. Calling them safe, in isolation, is misleading.

With those practices in place and the good international expansion potential (including the USA) the opportunities are good (thus I liked the investment). Short term hiccups don’t really bother me. I would rather avoid them but I can accept them. The think that worries me about Tesco is I am becoming less and less convinced they are committed to lean management principles. Instead they seem to just be practicing the same lame management that so many companies employ. They can still be successful that way but the lost value to shareholders is great and makes me very close to deciding to eliminate my investment. I already sold half of the position, last year.

I now live in Malaysia and the Tesco’s here are horrible. There is no evidence of customer focus. They have lousy “fresh” (often not) vegetables. It is very easy to be sloppy as you expand. They obviously are not concerned enough to practice lean thinking in Malaysia. That is a concern. But large organizations often struggle to manage themselves competently and one small area ignoring lean thinking principles isn’t enough to say Tesco is ignoring them completely. More and more evidence is pointing to Tesco being sloppy and ignore lean thnking, however.

The main current financial problems are in the home market issues not directly related to lean thinking. Those I could easily chose to wether, if I believe the company is committed to smart lean management principle, but I am not any longer (sadly). For me, I need to see more evidence of commitment to lean principles or I will likely sell out my investment.

Another problem I have is Amazon was my other retail investment and I have significant valuation concerns – I am closer to selling more than buying more (I have sold some). I have long been looking at Costco – I would have been much better off buying it over Tesco I am still considering it (I would love to buy Costco, it is just a valuation concern that holds me back, the company and the future prospects look great).

I lost no faith in Toyota (another stock in my sleep well portfolio) during the recent struggles. There were some slip-ups. Toyota’s responses were great – just as I would expect. Mainly the stories were greatly overblown.

Related: Tesco: Consistent Earnings Growth at Attractive Price – Apple’s Impossibly Good Quarter – Taking a Look at Some Dividend Aristocrats

• For Capitalism to Survive, Crime Must Not Pay by Bruce Judson – “Justice must be blind so that both parties — whether weak or powerful — can assume that an agreement between them will be equally enforced by the courts.

  There is a second, perhaps even more fundamental, reason that equal justice is essential for capitalism to work. When unequal justice prevails, the party that does not need to follow the law has a distinct competitive advantage. A corporation that knowingly breaks the law will find ways to profit through illegal means that are not available to competitors. As a consequence, the competitive playing field is biased toward the company that does not need to follow the rules.” (the crony capitalism that has grown in the last few decades in the USA is poisoning the country with a failure to justly prosecute those that break laws if they are rich and connected to the other powerful cronies. This is a serious problem. – John).

• Don’t Expect to Spend Over 4% of Your Retirement Investment Assets Annually by John Hunter – “This is likely one of the top 5 most important things to know about saving for retirement (and just 10% of the population got the answer right). You need to know that you can safely spend 5%, or likely less, of your investment assets safely in retirement (without dramatically eating into your principle.”
Flip-flops for sale in Singapore by John Hunter

• What America Pays In Taxes – In 2011 the USA government collected $1,100 billion in personal income taxes, $741 billion in payroll taxes (social security and medicare) [this should be a hint that look only at income taxes paid it might be very misleading - John], $200 billion in corporate taxes, $10 billion in estate and gifts taxes and $268 billion in other taxes (customs duties, excise taxes on products such as gasoline…).
• Value Investing is Not Necessarily Buy and Hold Investing by Shailesh Kumar – “Value investors choose to buy a stock when it is cheaper than the intrinsic value of the stock and sell it when it becomes more expensive.”
• Things You Need to Know Before Becoming a Freelancer: How Much Do You Need To Earn? takes a detailed look at the financial benefits of a normal job and considerations for how much a freelancer needs to earn to match the same net income.
• Why Generation Y is Causing the Great Migration of the 21st Century by Nathan Norris – “Just as cities were not completely abandoned in the 20th century, suburbs will not be abandoned in the 21st century. But the shift in preferences is clearly underway, and this radical change will manifest itself in the nature of real estate development over the next 20 years.”
• Become Wealthy Without the Lottery by Ryan Yates – “How much more money per month or per year would it take for you to be happy? The funny thing is, numerous surveys tell the story that your answer will be about $10,000 to $20,000 more per year – no matter what you’re currently making.”
• More Pain for Spain – “It would be a difficult choice but I do think that if Spain left the euro, which would be “a disaster for everyone else,” then it could really truly devalue its currency, make its workforce truly competitive and move on. Otherwise there has to be, perhaps, more fiscal integration and loss of ultimate sovereignty. I think that truly we would have to see the United States of Europe where everyone in Europe votes for the same President, is taxed by the same authority, and there are truly fiscal transfers that take place.”

Also see hand picked books and articles on investing, personal finance and economics from the Curious Cat library.

I have donated more to Tricke Up than any other charity for about 20 years now. There is a great deal of hardship in the world. It can seem like what you do doesn’t make a big dent in the hardship. But effective help makes a huge difference to those involved.

My personality is to think systemically. To help put a band aid on the current visible issue just doesn’t excite me. Lots of people are most excited to help whoever happens to be in their view right now. I care much more about creating systems that will produce benefits over and over into the future. This view is very helpful for an investor.

Trickle Up invests in helping people create better lives for themselves. It provides some assistance and “teaches people to fish” rather than just giving them some fish to help them today.

The stories in this video show examples of the largest potential for entrepreneurship. While creating a few huge visible successes (like Google, Apple…) is exciting the benefits of hundreds of millions of people having small financial success (compared to others) but hugely personally transforming success is more important. Capitalism is visible in these successes. What people often think of as capitalism (Wall Street) has much more resonance with royalty based economic systems than free market (free of market dominating anti-competitive and anti-market behavior) capitalism.

Related: Kiva Loans Give Entrepreneurs a Chance to Succeed – Micro-credit Research – Using Capitalism in Mali to Create Better Lives

This is likely one of the top 5 most important things to know about saving for retirement (and just 10% of the population got the answer right). You need to know that you can safely spend 5%, or likely less, of your investment assets safely in retirement (without dramatically eating into your principle.

Chart showing retirement assets over time based on various spending levels, from the Merill Lynch paper.

The chart is actually quite good, the paper also includes another good example (which is helpful in showing how much things can be affected by somewhat small changes*). One piece of good news is they assume much larger expense rates than you need to experience if you choose well. They assume 1.3% in fees. You can reduce that by 100 basis points using Vanguard. They also have the portfolio split 50% in stocks (S&P 500) and 50% in bonds.

Several interesting points can be drawn from this data. One the real investment returns matter a great deal. A 4% withdrawal rate worked until the global credit crisis killed investment returns at which time the sustainability of that rate disappeared. A 5% withdrawal rate lasted nearly 30 years (but you can’t count on that at all, it depends on what happens with you investment returns).

Related: What Investing Return Projections to Use In Planning for Retirement – How Much Will I Need to Save for Retirement? – Saving for Retirement

An interesting tidbit from the paper: A 65-year-old woman has a 62% chance of living past 85; for a 65-year-old couple, the chance of at least one spouse living past 95 is 31%.

When planning for retirement there are many unknowns. One thing to remember is you can’t count on working until your planned retirement date. Health complications can force you to retire early. Also economic or business conditions may force you to do so. Perhaps you can find another job, maybe not. Even if you do, it may be at a much lower salary.

Another paper: New World, New Rules (pdf) also has some interesting material. They do push some high revenue items (hedge funds, private equity…) for them, but as long as you can sensibly separate advice from sales pitches it is worth reading.

Another interesting tidbit from the paper: in 2011, 40% of the profits for the companies in the S&P 500 came from outside the USA. The idea of allocating portions of your portfolio to USA stock and foreign stocks is fairly largely confused by this. Much of your USA stock portfolio is very global already.

Another thing to consider is it is very wise to adjust your withdrawal rate based on investment conditions. So while you can’t expect to withdrawal over 4% every year if you have several good investing years that would allow you to take some extra money as long as you willing to take under 4% if you have a couple bad years.

* I do have a quibble with the way they discuss retiring 2 years later having such an impact. And they are not the only ones that do this, it happens all the time. They assume both people retire with the same investment value. But that is an unreasonable assumption. The whole reason why retiring just before a huge market slump is so bad is your assets take a huge hit. Well if you are just 2 years from retirement when that huge decline takes place you are not going to be able to make up for it and retire with that same amount.

You would basically have the same big loss the person that retired 2 years earlier did, you just experience it before you retire. You may be able to pick up an extra $10,000 or something by saving more since you see the decline just before you retire but basically the comparison is not accurate (in the way they claim). The biggest thing that having the huge decline just before you retire would allow is delaying retirement a few years (that way you can save up more money but just as important you can reduce the expected years in retirement because you work a few more years).