DALLAS - (Business Wire) Idearc Inc. (OTC: IDAR) announced that the Company and its domestic subsidiaries today filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of Texas, Dallas Division. Idearc also announced that it has reached an agreement in principle with the agent bank and a steering group of its secured lenders on certain critical elements of a plan of reorganization. The Company expects to be able to file a plan of reorganization in approximately 30 days, and if implemented as proposed, this plan will enable Idearc to significantly reduce its outstanding debt to a more suitable level upon emergence from the legal proceedings.
Pursuant to the proposed plan, Idearc does not need nor intend to obtain debtor-in-possession (DIP) financing during the reorganization, as the Company maintains substantial cash balances and continues to generate positive cash flow, and has reached an agreement on use of cash collateral.
Idearc expects to operate business as usual throughout its restructuring process, with no interruption in the solutions and services it provides to hundreds of thousands of clients around the nation.
“Today we take an important step forward as we continue to transform Idearc. Essentially we have a company with good potential being held back by a terminally ill balance sheet,” said Scott W. Klein, chief executive officer of Idearc Inc. “We are not only open for business and serving our clients as usual, we are also continuing our focus on transforming Idearc for the future based on a bold strategy, including all of the new programs launched earlier this month.
“The reorganization process will enable Idearc to quickly finalize and implement a debt restructuring plan that will strengthen our financial condition and position us to compete more effectively in a challenging and rapidly evolving economic environment,” Klein said.
“One of our most important priorities is to put in place an appropriate capital structure to support our strategic business plans and objectives. A new capital structure that can give all of our partners the confidence they need in us to be there for them in the years ahead provides us with the greatest chance for success.”
Under the agreement in principle with the agent bank and steering committee, the Company's total debt will be reduced from approximately $9 billion today to a pro forma level of $3 billion of secured bank debt, with a 12 percent interest rate and a six-year term. Mandatory amortization will be $60 million for each of the first two years following confirmation and $40 million per year thereafter. The Company will retain 32.5 percent of surplus cash flow, with the balance to be paid as additional amortization on the bank debt. At emergence from Chapter 11, the Company will have a cash balance of $150 million. Other terms of the plan are still to be negotiated, and it is anticipated that the remainder of the Company’s bank debt and bonds will be converted to equity.
Also, the agent bank and steering committee have agreed with the Company to continue to fund operations from all but $250 million of Idearc’s more than $600 million cash collateral balance. The remaining $250 million of cash collateral will be paid to the secured lenders as adequate protection, subject to bankruptcy court approval of the Company’s motion to use the cash collateral.
Idearc has also filed a variety of other customary first day motions with the bankruptcy court to enable it to continue to conduct business as usual while it completes its reorganization. These include motions providing for employees to continue to receive compensation and benefits as usual and to maintain customer programs and guarantees. Idearc expects to file a motion with the bankruptcy court shortly seeking to assume executory contracts related to its 30-year publishing agreement and 30-year branding agreement with Verizon Communications, Inc.
Idearc’s legal advisor for the restructuring is Fulbright & Jaworski LLP and its financial advisor is Moelis & Company.
More information about Idearc’s restructuring is available at www.idearc.com/restructuring. Idearc clients can call (800) 555-4833 for more information. Information for vendors is available at (866) 967-0760 or by sending an email to IdearcInfo@kccllc.com.
Idearc to continue operational plans to transform the company
Idearc is in the process of implementing an innovative new strategy designed to drive consumer usage of its products and increase client loyalty. Among numerous other initiatives, earlier this month Idearc announced the SuperGuaranteeSM program, a national consumer guarantee initiative designed to increase spending in local economies by lowering the risk associated with hiring contractors, plumbers, auto body repair shops and thousands of other eligible service provider category-based businesses.
“These are challenging times for small and medium businesses” Klein said. “Since joining Idearc in June 2008, my team and I have strategically and tenaciously developed new programs and product enhancements, and created more efficient ways of doing business that will forever change how we serve our consumers and clients.
“We have a unique opportunity to not only help our clients survive the current economic environment; we can actually help them grow. In effect we have declared our own war on the recession and are proving it with our actions – not words.”
Certain statements included in this press release and the hyperlinked materials constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect Idearc management’s current views with respect to Idearc’s financial performance and future events with respect to its business and industry in general. Statements regarding Idearc’s exploration of alternatives related to its capital structure are forward-looking statements. Statements that include the words “believe,” “will,” “anticipate,” “foresee,” and similar expressions identify forward-looking statements. Idearc cautions you not to place undue reliance on these forward-looking statements. The following important factors could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: (i) risk the bankruptcy filing and the related cases disrupt current plans and operations; (ii) risks that Idearc’s business could suffer from the loss of key customers, suppliers or personnel during the pendency of the bankruptcy cases, (iii) risks that Idearc’s plan of reorganization fails to obtain the requisite approval from the claim holders entitled to vote on the plan; (iv) risks that Idearc will be able to maintain sufficient liquidity for the pendency of the bankruptcy cases, (v) risk that the bankruptcy court rejects Idearc’s plan of reorganization; (vi) limitations on Idearc’s operating and strategic flexibility during the pendency of the bankruptcy cases; (vii) risks related to a long and protracted restructuring; (viii) risks related to Idearc’s declining print revenue, including a reduction in customer spending resulting from the current economic downturn; (ix) changes in Idearc’s competitive position due to competition from other yellow pages directories publishers and other traditional and new media and its ability to anticipate or respond to changes in technology and user preferences;(x) declining use of print yellow pages directories; (xi) changes in the availability and cost of paper and other raw materials used to print directories and reliance on third-party printers and distributors; (xii) increased credit risk associated with reliance on small- and medium-sized businesses, in particular in the current economic environment; (xxiii) changes in operating performance; (xiv) Idearc’s ability to attract and retain qualified executives; (xv) Idearc’s ability to maintain good relations with its unionized employees; (xvi) changes in U.S. labor, business, political and/or economic conditions; (xvii) changes in governmental regulations and policies and actions of regulatory bodies; and (xviii) risks associated with Idearc’s obligations under agreements entered into with Verizon in connection with the spin-off. For a discussion of these and other risks and uncertainties, see Idearc Inc.’s periodic filings with the Securities and Exchange Commission, which you may view at www.sec.gov, and in particular, Idearc Inc.’s Annual Report on Form 10-K.
About Idearc Inc.
Idearc Inc. (OTC:IDAR) delivers products on multiple platforms to help consumers find the information they want, wherever they are. Idearc’s multi-platform of advertising solutions includes, but is not limited to, Idearc®, Idearc Media®, the Idearc logo, the Idearc Media logo, Verizon® Yellow Pages, Verizon® White Pages, Verizon® Yellow Pages Companion Directories, FairPoint® Yellow Pages, FairPoint® Yellow Pages Companion Directories, Superpages®, Superpages.com®, Switchboard®, Switchboard.com™, LocalSearch.comSM, Superpages MobileSM, Superpages Direct™, Superpages Direct Exclusive Mailer™, SuperGuaranteeSM, and SuperTradeExchange.comTM. For more information, visit www.idearc.com.
IDAR-G
Media Relations Contacts:
Andrew Shane, 972-453-6473
andrew.shane@idearc.com
or
Investor Relations Contact:
Ryan Gaddy, 972-453-8724
ryan.gaddy@idearc.com
What You Will Find Here
- OJOS11
- Articles and news of general interest about investing, saving, personal finance, retirement, insurance, saving on taxes, college funding, financial literacy, estate planning, consumer education, long term care, financial services, help for seniors and business owners.
Blog List
-
-
China Produces 55 Percent of All Steel, Biden and Trump Eye Tariffs - China produces nearly 80% more than the next nine biggest steel producers, which are, in order, India, Japan, the US, Russia, South Korea, Turkey, Germany,...
-
China Is Buying Gold, Sending Prices to Record Highs - The global price of gold has reached its highest levels as Chinese investors and consumers, wary of real estate and stocks, buy the metal at a record pace.
-
Jack Dorsey has entered the epic rap beef between Kendrick Lamar and Drake - Twitter and Block cofounder Jack Dorsey appears to be on Kendrick Lamar's side in rap's latest brawl against Drake. Here's a bit of their history.
-
Everybody Else Is Reading This - Snowflakes That Stay On My Nose And Eyelashes Above The Law Trump’s New Birth Control […]
-
Maximizing Employer Stock Options - Oct 29 – On this edition of Lifetime Income, Paul Horn and Chris Preitauer discuss the benefits of employee stock options and how to best benefit from th...
-
Wayfair Needs to Prove This Isn't as Good as It Gets - Earnings were encouraging, but questions remain about the online retailer's long-term viability.
-
Hannity Promises To Expose CNN & NBC News In "EpicFail" - *"Tick tock."* In a mysterious tweet yesterday evening to his *3.19 million followers,* Fox News' Sean Hannity offered a preview of what is to come from ...
-
Don’t Forget These Important Retirement Deadlines - *Now that fall is in full swing, be sure to mark your calendar for steps that can help boost your tax-advantage retirement savings.*
GM bonds tumble on Obama Action (Dow Jones Newswire)
MARCH 30, 2009, 11:21 A.M. ET GM Bonds Tumble, CDS Rise After Government Intervention
By Andrew Edwards
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--General Motors Corp. (GM) bonds fell Monday while the cost of protecting them moved further into extremely distressed territory after the government's sweeping intervention in the troubled auto maker.
The company's 8.375% bonds due 2033 were off 2 points at 16 cents on the dollar, according to online trading platform MarketAxess.
Its shorter-term debt was off more sharply. GM's 7.2% note due 2011 traded down 4.5 points to 22 cents on the dollar, while its 7.125% notes due 2013 traded down 4 points at 18 cents on the dollar. Despite the trade-off, all three bonds are still up so far for the month, according to MarketAxess.
In early trade, GM's credit default swaps traded at 79.5 points from 77 points upfront on Friday, which means that investors must now pay $7.95 million up front plus a $500,000 fee to protect $10 million of GM bonds against default for five years. Similarly, GMAC's credit default swaps were trading at 31 Monday morning from 27.5 on Friday, according to Phoenix Partners Group.
Overnight, the Obama administration's auto team announced the departure of GM Chief Executive Rick Wagoner and suggested that filing for bankruptcy protection may represent the best chance of success for both GM and Chrysler LLC (C.XX).
GM's euro-denominated bonds due 2013 and 2033 were quoted at 15% and 25% of face value, respectively, according to one trading desk, reflecting the low recovery rates bondholders already expect under plans mooted to cut GM's debt.
"GM bonds were already trading relatively close to where people think recovery values will be," said Sven Kreitmair, credit analyst at UniCredit. "When the talk was of a two-thirds debt-for-equity swap, they traded at around 33% of face value. But as each new plan is suggested, the likely recovery rate for bondholders gets lower."
Still, not everyone reckons current bond prices are reflecting what recovery values would be.
KDP Advisor's credit analysts Kip Penniman Jr. has been arguing for some time that GM's bonds could still pay out at around 33 cents on the dollar.
GM's bondholders still have a lot of leverage: The government has said that bankruptcy would be a last resort, and bondholders can force an unmanaged bankruptcy if they're pushed to it, he said.
"They basically have the nuclear option," Penniman said, saying bondholders probably have more leverage in the process than the United Auto Workers.
Yet, a prenegotiated bankruptcy is the most likely outcome since a breach of bondholder contracts by the government would have dire consequences for the legal framework of financial markets, he said.
"Our legal guy here says that would just be a disaster; fallout would go far beyond the auto industry, " Penniman said. "They're going to have to do it in the legal framework, and that's why they will have to work with the bondholders."
The most simple resolution would be to issue government backed debt at 33 cents on the dollar with a government guarantee, with an equity kicker - what Penniman calls a "surgical bankruptcy" - 30 days in and out.
The government is pressuring the bondholders to agree to an equity swap that would reduce GM's debt load by two-thirds.
Meanwhile, the government's billions in bailout loans, which are currently subordinate to bank debt, could be put ahead of other loans through debtor in possession, or DIP, financing, "recapitalizing GM to the point where the taxpayer is where it should be in the first place."
GM and Chrysler received a total of $17.4 billion in government loans in December and have requested more. Of the $21.6 billion sought in new loans, GM is seeking $16.6 billion more, while Chrysler has asked for $5.5 billion.
-By Andrew Edwards, Dow Jones Newswires; 201-938-5973; andrew.edwards@dowjones.com (Mark Brown in London, and Neil King Jr. and John D. Stoll of The Wall Street Journal contributed to this report)
By Andrew Edwards
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--General Motors Corp. (GM) bonds fell Monday while the cost of protecting them moved further into extremely distressed territory after the government's sweeping intervention in the troubled auto maker.
The company's 8.375% bonds due 2033 were off 2 points at 16 cents on the dollar, according to online trading platform MarketAxess.
Its shorter-term debt was off more sharply. GM's 7.2% note due 2011 traded down 4.5 points to 22 cents on the dollar, while its 7.125% notes due 2013 traded down 4 points at 18 cents on the dollar. Despite the trade-off, all three bonds are still up so far for the month, according to MarketAxess.
In early trade, GM's credit default swaps traded at 79.5 points from 77 points upfront on Friday, which means that investors must now pay $7.95 million up front plus a $500,000 fee to protect $10 million of GM bonds against default for five years. Similarly, GMAC's credit default swaps were trading at 31 Monday morning from 27.5 on Friday, according to Phoenix Partners Group.
Overnight, the Obama administration's auto team announced the departure of GM Chief Executive Rick Wagoner and suggested that filing for bankruptcy protection may represent the best chance of success for both GM and Chrysler LLC (C.XX).
GM's euro-denominated bonds due 2013 and 2033 were quoted at 15% and 25% of face value, respectively, according to one trading desk, reflecting the low recovery rates bondholders already expect under plans mooted to cut GM's debt.
"GM bonds were already trading relatively close to where people think recovery values will be," said Sven Kreitmair, credit analyst at UniCredit. "When the talk was of a two-thirds debt-for-equity swap, they traded at around 33% of face value. But as each new plan is suggested, the likely recovery rate for bondholders gets lower."
Still, not everyone reckons current bond prices are reflecting what recovery values would be.
KDP Advisor's credit analysts Kip Penniman Jr. has been arguing for some time that GM's bonds could still pay out at around 33 cents on the dollar.
GM's bondholders still have a lot of leverage: The government has said that bankruptcy would be a last resort, and bondholders can force an unmanaged bankruptcy if they're pushed to it, he said.
"They basically have the nuclear option," Penniman said, saying bondholders probably have more leverage in the process than the United Auto Workers.
Yet, a prenegotiated bankruptcy is the most likely outcome since a breach of bondholder contracts by the government would have dire consequences for the legal framework of financial markets, he said.
"Our legal guy here says that would just be a disaster; fallout would go far beyond the auto industry, " Penniman said. "They're going to have to do it in the legal framework, and that's why they will have to work with the bondholders."
The most simple resolution would be to issue government backed debt at 33 cents on the dollar with a government guarantee, with an equity kicker - what Penniman calls a "surgical bankruptcy" - 30 days in and out.
The government is pressuring the bondholders to agree to an equity swap that would reduce GM's debt load by two-thirds.
Meanwhile, the government's billions in bailout loans, which are currently subordinate to bank debt, could be put ahead of other loans through debtor in possession, or DIP, financing, "recapitalizing GM to the point where the taxpayer is where it should be in the first place."
GM and Chrysler received a total of $17.4 billion in government loans in December and have requested more. Of the $21.6 billion sought in new loans, GM is seeking $16.6 billion more, while Chrysler has asked for $5.5 billion.
-By Andrew Edwards, Dow Jones Newswires; 201-938-5973; andrew.edwards@dowjones.com (Mark Brown in London, and Neil King Jr. and John D. Stoll of The Wall Street Journal contributed to this report)
Stocks - some realistic expectations (WSJ Opinion Page)
MARCH 30, 2009
How Long Until Stocks Bounce Back?
Even the best-case scenarios will require years.
By PETER J. TANOUS
Investors have breathed a world-wide sigh of relief in the waning weeks of March as equity markets have shown signs of upward vigor. The question now being bruited around the financial centers of the world is: Have we hit bottom?
No one really knows, but that is likely the wrong question. More important to investors than the date we hit bottom is how long the recovery will take. How long will it take for investors to recoup the losses they suffered since October 2007, when the S&P 500 index reached a record high of 1565? Here's a clue: It will take longer than you think. Let me explain.
Let's assume that we have already seen the market bottom and that it occurred on March 9, 2009, when the S&P 500 sank to 676. A return to the lofty level of 1565 reached 18 months earlier requires a stock market gain of 131%. How much time might that take? What if it took five years? I can hear the cries already: "Five years? To recoup the losses we sustained in only 18 months? That's terrible!"
We should be so lucky. You see, if we were to get back to the old high in five years, that would suggest an annual return of over 18% for that five year period. There are few periods in stock market history when the market rose 18% for five years. The last such period was in the late 1990s at the tail end of the Internet boom, which was followed by three years of consecutive stock market declines in 2000, 2001 and 2002. Given the history, a five-year recovery period, far from being terrible, is probably wishful thinking.
More realistically, what if, starting now, we began a munificent period of rising stock prices over a multiyear period of, say, 11% a year? If that happened, it would take eight years to get back to the October 2007 highs. To put all this in historical perspective, the average annual return for the S&P 500 over the past 83 years, since 1926, has been 9.7%. If the market rose at that historic rate, it would take more than nine years to get back to the October 2007 highs.
What is the lesson from these sobering statistics? The recovery in stock prices is likely to take much longer than we had hoped, and investors should taper their expectations accordingly. Raising the risk level of your investments to accelerate gains will set you up for even greater losses if your risky investments don't work out. Instead, allocate your assets wisely and be mindful of the risks in the different asset classes you choose.
The good news is that stocks will recover. It just may take longer than we expect.
Mr. Tanous is president and CEO of Lynx Investment Advisory LLC in Washington, D.C. He is the author of many books including "The End of Prosperity: How Higher Taxes Will Doom the Economy -- If We Let It Happen" (Threshold Editions, 2008), co-authored with Arthur Laffer and Stephen Moore.
How Long Until Stocks Bounce Back?
Even the best-case scenarios will require years.
By PETER J. TANOUS
Investors have breathed a world-wide sigh of relief in the waning weeks of March as equity markets have shown signs of upward vigor. The question now being bruited around the financial centers of the world is: Have we hit bottom?
No one really knows, but that is likely the wrong question. More important to investors than the date we hit bottom is how long the recovery will take. How long will it take for investors to recoup the losses they suffered since October 2007, when the S&P 500 index reached a record high of 1565? Here's a clue: It will take longer than you think. Let me explain.
Let's assume that we have already seen the market bottom and that it occurred on March 9, 2009, when the S&P 500 sank to 676. A return to the lofty level of 1565 reached 18 months earlier requires a stock market gain of 131%. How much time might that take? What if it took five years? I can hear the cries already: "Five years? To recoup the losses we sustained in only 18 months? That's terrible!"
We should be so lucky. You see, if we were to get back to the old high in five years, that would suggest an annual return of over 18% for that five year period. There are few periods in stock market history when the market rose 18% for five years. The last such period was in the late 1990s at the tail end of the Internet boom, which was followed by three years of consecutive stock market declines in 2000, 2001 and 2002. Given the history, a five-year recovery period, far from being terrible, is probably wishful thinking.
More realistically, what if, starting now, we began a munificent period of rising stock prices over a multiyear period of, say, 11% a year? If that happened, it would take eight years to get back to the October 2007 highs. To put all this in historical perspective, the average annual return for the S&P 500 over the past 83 years, since 1926, has been 9.7%. If the market rose at that historic rate, it would take more than nine years to get back to the October 2007 highs.
What is the lesson from these sobering statistics? The recovery in stock prices is likely to take much longer than we had hoped, and investors should taper their expectations accordingly. Raising the risk level of your investments to accelerate gains will set you up for even greater losses if your risky investments don't work out. Instead, allocate your assets wisely and be mindful of the risks in the different asset classes you choose.
The good news is that stocks will recover. It just may take longer than we expect.
Mr. Tanous is president and CEO of Lynx Investment Advisory LLC in Washington, D.C. He is the author of many books including "The End of Prosperity: How Higher Taxes Will Doom the Economy -- If We Let It Happen" (Threshold Editions, 2008), co-authored with Arthur Laffer and Stephen Moore.
Lock In Lifetime Income (Immediate Annuities) from WSJ
MARCH 28, 2009, 11:19 P.M. ET
Lock in a Lifetime of Income
By TOM LAURICELLA
Tough times in the markets are renewing interest in an old, reliable investment for retirement: immediate annuities.
These insurance products convert your cash into a stream of income that can be guaranteed to last the rest of your life. With many retirees staring at double-digit losses on their portfolios, that kind of reassurance is attractive.
Unlike some annuities that are complicated and expensive, immediate annuities are usually fairly straightforward. However, comparison shopping among insurers is essential because their payouts vary.
An immediate annuity can function just like a pension, producing a predictable payout. As the "immediate" part of the name suggests, the distributions start shortly after the money is invested. The trade-off with an annuity is that in exchange for that guaranteed payout, an investor gives up control of the money.
Payouts largely depend on an investor's age -- the older the investor, the bigger the checks -- and on the level of interest rates. These annuities are worth considering for retirees who tap their portfolios to pay day-to-day expenses and stand a chance of using up their savings.
'Shifting the Risk'
"You're shifting the risk that you'll outlive your money over to the insurance company," says Scott Stolz of Raymond James Financial.
If you're relying on your portfolio for living expenses, financial planners typically suggest withdrawing no more than 4% a year, to limit the risk of outliving your funds; in contrast, with an annuity, you'll get a bigger starting payout.
For example, an immediate annuity offered by Vanguard Group would convert a $100,000 investment from a 65-year old couple in Pennsylvania into $604.69 a month for life. (This policy comes with 100% joint survivorship, which means that when one spouse dies, the survivor continues to receive the full payout. It's possible to get higher payouts for a lower survivor percentage.)
How much to annuitize?
One strategy is to get a big enough check to cover essential expenses. Mr. Stolz suggests waiting a year or so into retirement to be sure of how much money is needed on a continuing basis.
One problem with getting a fixed payout from an immediate annuity is that over the two or three decades that a retiree may live, inflation can eat into the value of that money. It takes more than $1,700 to buy today what it cost $1,000 to buy in 1989.
Inflation Protection
You can insure against that erosion of spending power by using an annuity that adjusts to inflation. This feature comes with a cost, however. The same Vanguard annuity with an inflation-adjustment rider pays out $151 less per month initially, $453.49.
That may sound like a big difference, but inflation could more than reverse that gap over the course of retirement. If the consumer-price index rises 3% a year, the monthly payout on that inflation-adjusted annuity would hit $609 in 10 years -- matching the quote on the non-inflation-adjusted annuity -- and reach $818 in 20 years.
Paula Hogan, a financial adviser in Milwaukee, notes that the current environment, in which the inflation rate is declining, raises an additional issue: Some inflation-adjusted annuities, such as Vanguard's, can lower payments if consumer prices fall and then increase them again if prices subsequently rise.
Add Annuities Over Time
As an alternative way to contend with the inflation challenge, Ms. Hogan recommends some clients annuitize portions of their portfolio over time. That allows them to increase their income stream as needed, as well as to diversify among different insurers.
How much do payouts vary among insurers? A recent sampling of eight major insurers done for Encore by Hueler Cos. -- a firm that has an online annuity quote service for advisers -- found a difference of $108 between the highest and lowest payouts on a $100,000 annuity for a 65-year-old couple.
"I can ask 10 companies for the same exact type of annuity and get 10 different quotes," says Kelli Hueler, chief executive of the firm.
Email: encore@wsj.com
Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved
Lock in a Lifetime of Income
By TOM LAURICELLA
Tough times in the markets are renewing interest in an old, reliable investment for retirement: immediate annuities.
These insurance products convert your cash into a stream of income that can be guaranteed to last the rest of your life. With many retirees staring at double-digit losses on their portfolios, that kind of reassurance is attractive.
Unlike some annuities that are complicated and expensive, immediate annuities are usually fairly straightforward. However, comparison shopping among insurers is essential because their payouts vary.
An immediate annuity can function just like a pension, producing a predictable payout. As the "immediate" part of the name suggests, the distributions start shortly after the money is invested. The trade-off with an annuity is that in exchange for that guaranteed payout, an investor gives up control of the money.
Payouts largely depend on an investor's age -- the older the investor, the bigger the checks -- and on the level of interest rates. These annuities are worth considering for retirees who tap their portfolios to pay day-to-day expenses and stand a chance of using up their savings.
'Shifting the Risk'
"You're shifting the risk that you'll outlive your money over to the insurance company," says Scott Stolz of Raymond James Financial.
If you're relying on your portfolio for living expenses, financial planners typically suggest withdrawing no more than 4% a year, to limit the risk of outliving your funds; in contrast, with an annuity, you'll get a bigger starting payout.
For example, an immediate annuity offered by Vanguard Group would convert a $100,000 investment from a 65-year old couple in Pennsylvania into $604.69 a month for life. (This policy comes with 100% joint survivorship, which means that when one spouse dies, the survivor continues to receive the full payout. It's possible to get higher payouts for a lower survivor percentage.)
How much to annuitize?
One strategy is to get a big enough check to cover essential expenses. Mr. Stolz suggests waiting a year or so into retirement to be sure of how much money is needed on a continuing basis.
One problem with getting a fixed payout from an immediate annuity is that over the two or three decades that a retiree may live, inflation can eat into the value of that money. It takes more than $1,700 to buy today what it cost $1,000 to buy in 1989.
Inflation Protection
You can insure against that erosion of spending power by using an annuity that adjusts to inflation. This feature comes with a cost, however. The same Vanguard annuity with an inflation-adjustment rider pays out $151 less per month initially, $453.49.
That may sound like a big difference, but inflation could more than reverse that gap over the course of retirement. If the consumer-price index rises 3% a year, the monthly payout on that inflation-adjusted annuity would hit $609 in 10 years -- matching the quote on the non-inflation-adjusted annuity -- and reach $818 in 20 years.
Paula Hogan, a financial adviser in Milwaukee, notes that the current environment, in which the inflation rate is declining, raises an additional issue: Some inflation-adjusted annuities, such as Vanguard's, can lower payments if consumer prices fall and then increase them again if prices subsequently rise.
Add Annuities Over Time
As an alternative way to contend with the inflation challenge, Ms. Hogan recommends some clients annuitize portions of their portfolio over time. That allows them to increase their income stream as needed, as well as to diversify among different insurers.
How much do payouts vary among insurers? A recent sampling of eight major insurers done for Encore by Hueler Cos. -- a firm that has an online annuity quote service for advisers -- found a difference of $108 between the highest and lowest payouts on a $100,000 annuity for a 65-year-old couple.
"I can ask 10 companies for the same exact type of annuity and get 10 different quotes," says Kelli Hueler, chief executive of the firm.
Email: encore@wsj.com
Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved
Investing in Trends - from Smartmoney.com
SmartMoney
Published March 25, 2009
Screens by Jack Hough
7 Stocks for 10-Year Holders
Stock screening software is handy for sorting cheap shares from pricey ones and determining which are recently rising. But it can’t tell which companies are neatly aligned with long-term societal trends. That means a search for stocks to hold for the next 10 years strays necessarily from the comfort of cold calculus to the gray of human judgment.
Still, I hope you’ll find the following points noncontroversial. For each, the computer has helped find some promising stocks—modestly priced ones attached to prosperous companies.
1. We’re getting old.
About 13% of Americans are 65 or older. By 2030, more than 20% will be, reckons the Census Bureau. The old spend less than the middle-aged on lots of things, but healthcare isn’t one of them. Four in five seniors have a chronic health condition like high blood pressure and diabetes, and half have two or more such conditions. Pills and prescription plans seem like good bets, but a greater role for government in coming years might crimp the profitability of either or both.
Companies that put paper medical records on computer networks, thereby saving money and improving results, seem more assured of growth. San Francisco-based McKesson (MCK1) is North America’s largest drug distributor and a leading provider of information technology to hospitals, insurers and government health-care agencies. Its sales are growing nicely through the current recession, and its shares fetch less than nine times forecast earnings for the company’s fiscal year ending March 31.
2. We’re still fat.
Beyond fat, really: The obese, at 34% of the population, now outnumber the merely overweight, at 33%, according to the National Center for Health Statistics. I suppose that favors purchases of plenty of ordinary things in larger sizes, like pants and airplane seats, but the companies mostly likely to gain from these — Wal-Mart (WMT2) and BE Aerospace (BEAV3) — are more affected by other trends. Kinetic Concepts (KCI4), based in San Antonio, makes vacuum-assisted systems for healing difficult wounds, like skin ulcers associated with diabetes, which is itself associated with obesity. It also makes specialty hospital beds, including ones that accommodate oversized patients.
Optimists might prefer to invest in diet plans and exercise. Companies that offer both are cheap right now; shares of gym chain Life Time Fitness (LTM5) and diet programs Weight Watchers (WTW6) and NutriSystem (NTRI7) trade at 8 to 9 times earnings. Weight Watchers is the best diet plan, according to ConsumerSearch.com, which amalgamated opinions from a variety of sources, including Consumer Reports and The Journal of the American Medical Association. With budgets tight, sales for Weight Watchers are seen declining 9% this year, and those for NutriSystem are seen falling 14%. Life Time is growing sales, mostly because it is opening new clubs, not expanding sales at longstanding ones. NutriSystem, unlike the others, is debt-free, and it offers the plumpest dividend yield: 5.3%.
3. A house bubble has popped, but has left plenty of houses.
Prices are down 27% from their mid-2006 peak, according to S&P’s Case/Shiller index, last reported in February for December. But houses built during the frothy years — from 2000 to 2007 the number of housing units swelled 10% while the population increased less than 7% — remain. Not all are cared for; a record one in nine are vacant. Assuming prices will eventually find a level where buyers will move in, our huge housing stock will need plenty of paint and lawn care in years to come. Sherwin-Williams (SHW8) leads the nation in paint sales, makes most of its money from touch-ups on existing houses, and has increased its dividend each year since 1979. Current yield: 3.2%. Shares are 14 times earnings. The Scotts Miracle-Gro Company (SMG9), true to its name, is increasing sales in what seems like an unlikely setting. Shares sell for just under 15 times earnings, but those earnings are expected to grow by double-digit percentages this year and next. The dividend yield seems in need of a spritz or two of growth spray, at just 1.5%.
Screen Survivors Company Ticker Price P/E Yield
McKesson MCK10 36.27 9 1.4
Kinetic Concepts KCI11 19.78 6 n/a
Lifetime Fitness LTM12 11.28 7 n/a
NutriSystem NTRI13 14.14 9 5.3
Weight Watchers WTW14 19.35 8 3.7
Sherwin-Williams SHW15 50.2 14 3.2
The Scotts Miracle-Gro Company SMG16 33.97 15 1.5
1http://www.smartmoney.com/quote/MCK/
2http://www.smartmoney.com/quote/WMT/
3http://www.smartmoney.com/quote/BEAV/
4http://www.smartmoney.com/quote/KCI/
5http://www.smartmoney.com/quote/LTM/
6http://www.smartmoney.com/quote/WTW/
7http://www.smartmoney.com/quote/NTRI/
8http://www.smartmoney.com/quote/SHW/
9http://www.smartmoney.com/quote/SMG/
10http://www.smartmoney.com/cfscripts/director.cfm?searchstring=MCK
11http://www.smartmoney.com/cfscripts/director.cfm?searchstring=KCI
12http://www.smartmoney.com/cfscripts/director.cfm?searchstring=LTM
13http://www.smartmoney.com/cfscripts/director.cfm?searchstring=NTRI
14http://www.smartmoney.com/cfscripts/director.cfm?searchstring=WTW
15http://www.smartmoney.com/cfscripts/director.cfm?searchstring=SHW
16http://www.smartmoney.com/cfscripts/director.cfm?searchstring=SMG
URL for this article:
http://www.smartmoney.com/Investing/Stocks/7-Stocks-for-10-Year-Holders/
Published March 25, 2009
Screens by Jack Hough
7 Stocks for 10-Year Holders
Stock screening software is handy for sorting cheap shares from pricey ones and determining which are recently rising. But it can’t tell which companies are neatly aligned with long-term societal trends. That means a search for stocks to hold for the next 10 years strays necessarily from the comfort of cold calculus to the gray of human judgment.
Still, I hope you’ll find the following points noncontroversial. For each, the computer has helped find some promising stocks—modestly priced ones attached to prosperous companies.
1. We’re getting old.
About 13% of Americans are 65 or older. By 2030, more than 20% will be, reckons the Census Bureau. The old spend less than the middle-aged on lots of things, but healthcare isn’t one of them. Four in five seniors have a chronic health condition like high blood pressure and diabetes, and half have two or more such conditions. Pills and prescription plans seem like good bets, but a greater role for government in coming years might crimp the profitability of either or both.
Companies that put paper medical records on computer networks, thereby saving money and improving results, seem more assured of growth. San Francisco-based McKesson (MCK1) is North America’s largest drug distributor and a leading provider of information technology to hospitals, insurers and government health-care agencies. Its sales are growing nicely through the current recession, and its shares fetch less than nine times forecast earnings for the company’s fiscal year ending March 31.
2. We’re still fat.
Beyond fat, really: The obese, at 34% of the population, now outnumber the merely overweight, at 33%, according to the National Center for Health Statistics. I suppose that favors purchases of plenty of ordinary things in larger sizes, like pants and airplane seats, but the companies mostly likely to gain from these — Wal-Mart (WMT2) and BE Aerospace (BEAV3) — are more affected by other trends. Kinetic Concepts (KCI4), based in San Antonio, makes vacuum-assisted systems for healing difficult wounds, like skin ulcers associated with diabetes, which is itself associated with obesity. It also makes specialty hospital beds, including ones that accommodate oversized patients.
Optimists might prefer to invest in diet plans and exercise. Companies that offer both are cheap right now; shares of gym chain Life Time Fitness (LTM5) and diet programs Weight Watchers (WTW6) and NutriSystem (NTRI7) trade at 8 to 9 times earnings. Weight Watchers is the best diet plan, according to ConsumerSearch.com, which amalgamated opinions from a variety of sources, including Consumer Reports and The Journal of the American Medical Association. With budgets tight, sales for Weight Watchers are seen declining 9% this year, and those for NutriSystem are seen falling 14%. Life Time is growing sales, mostly because it is opening new clubs, not expanding sales at longstanding ones. NutriSystem, unlike the others, is debt-free, and it offers the plumpest dividend yield: 5.3%.
3. A house bubble has popped, but has left plenty of houses.
Prices are down 27% from their mid-2006 peak, according to S&P’s Case/Shiller index, last reported in February for December. But houses built during the frothy years — from 2000 to 2007 the number of housing units swelled 10% while the population increased less than 7% — remain. Not all are cared for; a record one in nine are vacant. Assuming prices will eventually find a level where buyers will move in, our huge housing stock will need plenty of paint and lawn care in years to come. Sherwin-Williams (SHW8) leads the nation in paint sales, makes most of its money from touch-ups on existing houses, and has increased its dividend each year since 1979. Current yield: 3.2%. Shares are 14 times earnings. The Scotts Miracle-Gro Company (SMG9), true to its name, is increasing sales in what seems like an unlikely setting. Shares sell for just under 15 times earnings, but those earnings are expected to grow by double-digit percentages this year and next. The dividend yield seems in need of a spritz or two of growth spray, at just 1.5%.
Screen Survivors Company Ticker Price P/E Yield
McKesson MCK10 36.27 9 1.4
Kinetic Concepts KCI11 19.78 6 n/a
Lifetime Fitness LTM12 11.28 7 n/a
NutriSystem NTRI13 14.14 9 5.3
Weight Watchers WTW14 19.35 8 3.7
Sherwin-Williams SHW15 50.2 14 3.2
The Scotts Miracle-Gro Company SMG16 33.97 15 1.5
1http://www.smartmoney.com/quote/MCK/
2http://www.smartmoney.com/quote/WMT/
3http://www.smartmoney.com/quote/BEAV/
4http://www.smartmoney.com/quote/KCI/
5http://www.smartmoney.com/quote/LTM/
6http://www.smartmoney.com/quote/WTW/
7http://www.smartmoney.com/quote/NTRI/
8http://www.smartmoney.com/quote/SHW/
9http://www.smartmoney.com/quote/SMG/
10http://www.smartmoney.com/cfscripts/director.cfm?searchstring=MCK
11http://www.smartmoney.com/cfscripts/director.cfm?searchstring=KCI
12http://www.smartmoney.com/cfscripts/director.cfm?searchstring=LTM
13http://www.smartmoney.com/cfscripts/director.cfm?searchstring=NTRI
14http://www.smartmoney.com/cfscripts/director.cfm?searchstring=WTW
15http://www.smartmoney.com/cfscripts/director.cfm?searchstring=SHW
16http://www.smartmoney.com/cfscripts/director.cfm?searchstring=SMG
URL for this article:
http://www.smartmoney.com/Investing/Stocks/7-Stocks-for-10-Year-Holders/
from CNBC, Current Opportunities in Corporate Bonds
Forget Stocks: The Real Rally Now Is In Corporate Bonds
Posted By: Jeff Cox | CNBC.com
CNBC.com | 25 Mar 2009 | 02:45 PM ET
While stocks have been rallying lately, the big investing story these days may be corporate bonds, where soaring yields are drawing strong interest.
Many corporate bonds, particularly those in the financial field, are offering double-digit yields, while the Dow Jones Corporate Bond Index is just above 7 percent. The gaudy yields are a strong enticement even though the threat of defaults makes the bonds highly risky.
"Credit markets aren't working properly so investors don't want to take the risk. To attract investors they have to keep pushing up the yield," says Heater Errigo, managing director at Lynx Investment Advisory in Washington, D.C. "At some point the yield spreads have to narrow back in ... but right now it's a great opportunity. You can buy some high-quality corporate bonds that can give you some great yields."
Spreads between corporate bonds and Treasurys have hit about 4 percentage points, a trend stimulated both by a rush to the safety of government issues and a drop in demand for corporates on fear that the companies issuing them may not make good on their debt.
At the same time, the surge in stocks, while pronounced, still leaves the major indexes well off their highs for 2009, and the past two days have seen the market wobble. That has sent investors looking for returns elsewhere.
Investors can buy bonds either directly, using a manager, or through funds, with a surge of activity particularly in exchange-traded issues. An initial direct investment into corporates usually requires at least $5,000 but the amount varies, while ETFs can be purchased as easily as stocks.
"They're always a legitimate investment opportunity. You just have to be selective at what you buy," says Dennis P. Barba Jr., professor at the Weatherhead School of Management of Case Western Reserve University. "Do some research into the company and have a reasonable sense that they're going to be solvent."
But for retail investors the calculus is difficult, and some investment pros are loathe to recommend corporates.
"For income, bonds are great, but you better know the risk factor," says Bill Walsh, president of Hennion & Walsh Asset Management in Parsippany, N.J. "If we had a client right now that has to buy corporates because they want that extra yield and understand the risk, what we would suggest is instead of taking that one corporate, use a professional manager."
Managers have taken a liking to ETFs that track the performance of indexes measuring corporate bonds.
The iShares iBoxx Investment Grade Corporate Bond fund has seen strong money flows over the past week though it is down about 7 percent for 2009.
Another of the more popular ETFs for the group, the iBoxx High Yield Corporate Bond , is off nearly 8 percent this year but has gained about 12 percent in the past two weeks.
Another of the more actively traded ETFs in the group is the SPDR Barclays Capital High Yield Bond , which also has gained 12 percent since March 9.
Enthusiasm From Money Managers
Indeed, the demand for corporates is on the brink of bullishness.
The Investment Manager Outlook, a quarterly survey of investment pros conducted by Tacoma, Wash.-based money manager Russell Investments, found 67 percent of managers bullish on corporate bonds and 61 percent bullish on high-yield bonds in general. Both categories were more popular than stocks.
"In this environment of caution and realism, managers are finding opportunity in spreads between high-quality corporate bonds and Treasurys that are at historic levels," Erik Ristuben, Russell's chief investment officer, said in a statement.
"Managers also see attractiveness in high-yield bonds, which may constitute a very good value compared with a possibly even more volatile equities market, especially for those managers who can discriminate and effectively pick the winners."
To be sure, the other end of the double-edged sword in the corporate yield surge is an uncertainty over the future of equities.
Stocks have staged an impressive rally this week, but the Dow industrials are still 13 percent below their January peak after the post-election rally.
Investors are pricing in a five-year default rate of 40 percent for corporates, according to Deutsche Bank, indicating that a sustained run higher in stocks could be difficult amid all the troubles companies will be facing in the days ahead. The number also serves as reminder of how important it is to pick the right bonds.
"A trend upward is not going to happen until the corporate market goes back to normal," Lynx's Errigo says. "We have to have lending go back to a normal level before the equity markets are going to have a sustained rally. It's definitely a reflection of the uncertainty in equity markets out there."
The Russell survey also has found sentiment declining for stocks, even though a 57 percent majority still finds the market underpriced.
"Managers want to know that the economy is functioning properly again and believe that the credit situation is the key to understanding when the economy and markets are set to recover," Ristuben said.
Until the equity markets stabilize, investors will have to decide just how much risk they're willing to take. Those with a high appetite could find a nice reward in corporate bonds.
"My discussion with the retail investor would be: Do you know the risk and do you want that risk, and if you do is there a way to diversify that risk?" Walsh says. "I don't know if I believe the reward is worth the risk at this point for an individual investor."
© 2009 CNBC.com
URL: http://www.cnbc.com/id/29877394/
Posted By: Jeff Cox | CNBC.com
CNBC.com | 25 Mar 2009 | 02:45 PM ET
While stocks have been rallying lately, the big investing story these days may be corporate bonds, where soaring yields are drawing strong interest.
Many corporate bonds, particularly those in the financial field, are offering double-digit yields, while the Dow Jones Corporate Bond Index is just above 7 percent. The gaudy yields are a strong enticement even though the threat of defaults makes the bonds highly risky.
"Credit markets aren't working properly so investors don't want to take the risk. To attract investors they have to keep pushing up the yield," says Heater Errigo, managing director at Lynx Investment Advisory in Washington, D.C. "At some point the yield spreads have to narrow back in ... but right now it's a great opportunity. You can buy some high-quality corporate bonds that can give you some great yields."
Spreads between corporate bonds and Treasurys have hit about 4 percentage points, a trend stimulated both by a rush to the safety of government issues and a drop in demand for corporates on fear that the companies issuing them may not make good on their debt.
At the same time, the surge in stocks, while pronounced, still leaves the major indexes well off their highs for 2009, and the past two days have seen the market wobble. That has sent investors looking for returns elsewhere.
Investors can buy bonds either directly, using a manager, or through funds, with a surge of activity particularly in exchange-traded issues. An initial direct investment into corporates usually requires at least $5,000 but the amount varies, while ETFs can be purchased as easily as stocks.
"They're always a legitimate investment opportunity. You just have to be selective at what you buy," says Dennis P. Barba Jr., professor at the Weatherhead School of Management of Case Western Reserve University. "Do some research into the company and have a reasonable sense that they're going to be solvent."
But for retail investors the calculus is difficult, and some investment pros are loathe to recommend corporates.
"For income, bonds are great, but you better know the risk factor," says Bill Walsh, president of Hennion & Walsh Asset Management in Parsippany, N.J. "If we had a client right now that has to buy corporates because they want that extra yield and understand the risk, what we would suggest is instead of taking that one corporate, use a professional manager."
Managers have taken a liking to ETFs that track the performance of indexes measuring corporate bonds.
The iShares iBoxx Investment Grade Corporate Bond fund has seen strong money flows over the past week though it is down about 7 percent for 2009.
Another of the more popular ETFs for the group, the iBoxx High Yield Corporate Bond , is off nearly 8 percent this year but has gained about 12 percent in the past two weeks.
Another of the more actively traded ETFs in the group is the SPDR Barclays Capital High Yield Bond , which also has gained 12 percent since March 9.
Enthusiasm From Money Managers
Indeed, the demand for corporates is on the brink of bullishness.
The Investment Manager Outlook, a quarterly survey of investment pros conducted by Tacoma, Wash.-based money manager Russell Investments, found 67 percent of managers bullish on corporate bonds and 61 percent bullish on high-yield bonds in general. Both categories were more popular than stocks.
"In this environment of caution and realism, managers are finding opportunity in spreads between high-quality corporate bonds and Treasurys that are at historic levels," Erik Ristuben, Russell's chief investment officer, said in a statement.
"Managers also see attractiveness in high-yield bonds, which may constitute a very good value compared with a possibly even more volatile equities market, especially for those managers who can discriminate and effectively pick the winners."
To be sure, the other end of the double-edged sword in the corporate yield surge is an uncertainty over the future of equities.
Stocks have staged an impressive rally this week, but the Dow industrials are still 13 percent below their January peak after the post-election rally.
Investors are pricing in a five-year default rate of 40 percent for corporates, according to Deutsche Bank, indicating that a sustained run higher in stocks could be difficult amid all the troubles companies will be facing in the days ahead. The number also serves as reminder of how important it is to pick the right bonds.
"A trend upward is not going to happen until the corporate market goes back to normal," Lynx's Errigo says. "We have to have lending go back to a normal level before the equity markets are going to have a sustained rally. It's definitely a reflection of the uncertainty in equity markets out there."
The Russell survey also has found sentiment declining for stocks, even though a 57 percent majority still finds the market underpriced.
"Managers want to know that the economy is functioning properly again and believe that the credit situation is the key to understanding when the economy and markets are set to recover," Ristuben said.
Until the equity markets stabilize, investors will have to decide just how much risk they're willing to take. Those with a high appetite could find a nice reward in corporate bonds.
"My discussion with the retail investor would be: Do you know the risk and do you want that risk, and if you do is there a way to diversify that risk?" Walsh says. "I don't know if I believe the reward is worth the risk at this point for an individual investor."
© 2009 CNBC.com
URL: http://www.cnbc.com/id/29877394/
Downgrades on Bank of America and Wells Fargo
The big news yesterday outside the economic numbers was a downgrade on Wells Fargo and BoA. Both were expected and the senior-debt rating for Charlotte, North Carolina-based Bank of America was reduced to A2 from A1, according to a statement by Moody’s. San Francisco-based Wells Fargo had its senior-debt rating cut to A1 from Aa3. Both banks have accepted capital and guarantees from the Treasury valued at $163 billion for BoA, including aid to its units; and $25 billion for Wells Fargo, which they followed up and sold $12.6 billion in stock to the public the following month.
Bank of America stock has plunged by about two-thirds since the lender raised $10 billion selling shares for $22 each in October. It advanced 48 cents yesterday to $7.70. Wells Fargo rose 92 cents, or 5.9 percent, to $16.42. The senior subordinated debt rating for Bank of America was cut to A3 from A2, and the junior subordinated debt rating was downgraded to Baa3 from A2, The preferred stock rating is now at junk-level B3. Senior subordinated debt was reduced to A2 from A1 for Wells Fargo, Moody’s said today in a statement. The preferred stock rating was cut to B2 from A2. The bank's bonds in the 5-year sector tightened by 5-7bp yesterday.
Bank of America stock has plunged by about two-thirds since the lender raised $10 billion selling shares for $22 each in October. It advanced 48 cents yesterday to $7.70. Wells Fargo rose 92 cents, or 5.9 percent, to $16.42. The senior subordinated debt rating for Bank of America was cut to A3 from A2, and the junior subordinated debt rating was downgraded to Baa3 from A2, The preferred stock rating is now at junk-level B3. Senior subordinated debt was reduced to A2 from A1 for Wells Fargo, Moody’s said today in a statement. The preferred stock rating was cut to B2 from A2. The bank's bonds in the 5-year sector tightened by 5-7bp yesterday.
Economic Stimulus - Medical Records Companies (WSJ)
MARCH 24, 2009 Stimulus Funds for E-Records Augur Big Windfall for Small Health Firms
»By JACOB GOLDSTEIN
Big companies including General Electric Co. will likely profit from the billions of federal stimulus dollars going to doctors who buy and use electronic health records. But little-known niche players could be among the biggest winners.
One such company is eClinicalWorks, a closely held firm in Westborough, Mass. The company, founded a decade ago by computer-programmer Girish Kumar Navani, his cousin and his physician brother-in-law, now has about 750 employees and expects $100 million in revenue this year. In the next few years, the company plans to hire 500 more people, up from 150 before the stimulus bill was approved.
"As of Dec. 31, we had put together a game plan saying, 'This economy looks like it's really getting bad. Why don't we be a little bit prudent?'" Mr. Navani says. "It changed in four weeks to, 'You will hire for growth; forget hiring for need.'"
The $787 billion stimulus package Congress approved in February promises more than $20 billion in outlays for health-information technology, coming mostly between 2011 and 2015, according to an estimate from the Congressional Budget Office. Physicians using electronic records will be eligible for more than $40,000 each in Medicare incentive payments over several years starting in 2011. Hospitals can also qualify for millions of dollars in incentive payments. Doctors and hospitals not going electronic by 2015 will be subject to penalties.
"We never anticipated the kind of dollars we're talking about today -- never in our wildest dreams," says Steven Plochocki, chief executive of Quality Systems Inc., a publicly traded company that sells electronic records under the brand NextGen.
An electronic health record, sometimes called an electronic medical record, replaces a patient's paper file. EHR systems can incorporate safety features such as automatically alerting a doctor if a patient has prescriptions for drugs with dangerous interactions. Proponents believe EHRs can also reduce wasteful spending from unnecessary testing, help doctors spot trends in their practices and enable agencies such as Medicare to pool anonymous medical data to track public-health issues.
Skeptics say that sharing information electronically will require the creation of complex data networks. Worries about patient privacy also persist. And many physicians say the systems can be expensive and difficult to use. The cost often runs to tens of thousands of dollars per doctor in the first year -- and several thousand dollars a year after that.
A federally funded survey published last year found that only 13% of practicing doctors used a basic EHR system, and only 4% used what the authors called a "fully functional" system.
Key details of how the money will be distributed remain undecided. To receive incentive payments, doctors must demonstrate "meaningful use" of a "certified" EHR, but the legislation leaves those terms to be defined by federal officials.
GE has been in the health-equipment business for decades, but it didn't start selling EHR systems to doctors until 2002, when it bought a system from another vendor. The business is already growing at a rate of 15% to 20% a year, says Jim Corrigan of GE Healthcare IT.
But the labor-intensive aspects of adopting and maintaining electronic systems in doctors' offices can give smaller technology companies an opening to compete against big corporations, says Eric Brown, an analyst at Forrester Research Inc.Shares of publicly traded specialists such as Quality Systems, Allscripts-Misys Healthcare Solutions Inc. and Cerner Corp., have outperformed the broader market this year. Earlier this month, eClinicalWorks gained a national distribution channel when Wal-Mart Stores Inc. said it will begin selling eClinicalWorks EHR packages to medical offices through its Sam's Club stores.
The installation of Dell Inc. computers and training by eClinicalWorks staff will cost a physician $25,000 for the first year, with the option of adding additional doctors in the practice for $10,000 each. After the first year, the price will fall to about $5,000 a doctor annually.
Mr. Plochocki of Quality Systems says consolidation among vendors is likely, and he says that his company is considering a few acquisitions this year. Quality Systems has also been beefing up its sales force, he says.
Allscripts is using its business selling billing software to doctors as a jumping off point, selling EHR systems to its existing customers. Glen Tullman, the company's CEO, says a physician customer recently explained why he would rather buy both billing software and an EHR system from a single vendor: "If something goes wrong, I want one throat to choke," the doctor said.
Write to Jacob Goldstein at jacob.goldstein@wsj.com
»By JACOB GOLDSTEIN
Big companies including General Electric Co. will likely profit from the billions of federal stimulus dollars going to doctors who buy and use electronic health records. But little-known niche players could be among the biggest winners.
One such company is eClinicalWorks, a closely held firm in Westborough, Mass. The company, founded a decade ago by computer-programmer Girish Kumar Navani, his cousin and his physician brother-in-law, now has about 750 employees and expects $100 million in revenue this year. In the next few years, the company plans to hire 500 more people, up from 150 before the stimulus bill was approved.
"As of Dec. 31, we had put together a game plan saying, 'This economy looks like it's really getting bad. Why don't we be a little bit prudent?'" Mr. Navani says. "It changed in four weeks to, 'You will hire for growth; forget hiring for need.'"
The $787 billion stimulus package Congress approved in February promises more than $20 billion in outlays for health-information technology, coming mostly between 2011 and 2015, according to an estimate from the Congressional Budget Office. Physicians using electronic records will be eligible for more than $40,000 each in Medicare incentive payments over several years starting in 2011. Hospitals can also qualify for millions of dollars in incentive payments. Doctors and hospitals not going electronic by 2015 will be subject to penalties.
"We never anticipated the kind of dollars we're talking about today -- never in our wildest dreams," says Steven Plochocki, chief executive of Quality Systems Inc., a publicly traded company that sells electronic records under the brand NextGen.
An electronic health record, sometimes called an electronic medical record, replaces a patient's paper file. EHR systems can incorporate safety features such as automatically alerting a doctor if a patient has prescriptions for drugs with dangerous interactions. Proponents believe EHRs can also reduce wasteful spending from unnecessary testing, help doctors spot trends in their practices and enable agencies such as Medicare to pool anonymous medical data to track public-health issues.
Skeptics say that sharing information electronically will require the creation of complex data networks. Worries about patient privacy also persist. And many physicians say the systems can be expensive and difficult to use. The cost often runs to tens of thousands of dollars per doctor in the first year -- and several thousand dollars a year after that.
A federally funded survey published last year found that only 13% of practicing doctors used a basic EHR system, and only 4% used what the authors called a "fully functional" system.
Key details of how the money will be distributed remain undecided. To receive incentive payments, doctors must demonstrate "meaningful use" of a "certified" EHR, but the legislation leaves those terms to be defined by federal officials.
GE has been in the health-equipment business for decades, but it didn't start selling EHR systems to doctors until 2002, when it bought a system from another vendor. The business is already growing at a rate of 15% to 20% a year, says Jim Corrigan of GE Healthcare IT.
But the labor-intensive aspects of adopting and maintaining electronic systems in doctors' offices can give smaller technology companies an opening to compete against big corporations, says Eric Brown, an analyst at Forrester Research Inc.Shares of publicly traded specialists such as Quality Systems, Allscripts-Misys Healthcare Solutions Inc. and Cerner Corp., have outperformed the broader market this year. Earlier this month, eClinicalWorks gained a national distribution channel when Wal-Mart Stores Inc. said it will begin selling eClinicalWorks EHR packages to medical offices through its Sam's Club stores.
The installation of Dell Inc. computers and training by eClinicalWorks staff will cost a physician $25,000 for the first year, with the option of adding additional doctors in the practice for $10,000 each. After the first year, the price will fall to about $5,000 a doctor annually.
Mr. Plochocki of Quality Systems says consolidation among vendors is likely, and he says that his company is considering a few acquisitions this year. Quality Systems has also been beefing up its sales force, he says.
Allscripts is using its business selling billing software to doctors as a jumping off point, selling EHR systems to its existing customers. Glen Tullman, the company's CEO, says a physician customer recently explained why he would rather buy both billing software and an EHR system from a single vendor: "If something goes wrong, I want one throat to choke," the doctor said.
Write to Jacob Goldstein at jacob.goldstein@wsj.com
Tips on Reducing Your Tax Bill
10 Tips on How To Cut Your Income Tax Bill ( from NY Life )
Before you file your 2008 income tax return with the IRS, review these ten tax tips. Between some tax deductions here, and a tax credit or two there, you could shave thousands of dollars off your tax bill. So, do your homework, and be sure to talk to your accountant or other tax advisor to make sure you qualify.
Start With Tax Credits1
See if you qualify for any of these four tax credits. (A tax credit is powerful money. It lets you deduct the amount from your tax bill … not just from your taxable income!)
1. Earned Income Tax Credit: You may have not been eligible in the past. However, if your income decreased in 2008, this credit, worth a maximum of $4,824, is worth a second look. Even if it didn’t, the IRS says that a quarter of all eligible taxpayers fail to take this credit2.
2. Child Tax Credit & Personal Exemption: If you have minor children, you may be eligible for an additional $1,000 credit on top of the regular $3,500 exemption you can claim for each dependent. Adults can also claim $3,500 each as a personal exemption. There are income limits and other qualifying criteria3.
3. First-Time Homeowner Credit: This is really a no-interest loan from Uncle Sam. If you bought -- or will buy -- a home on or after April 9, 2008, and before December 1, 2009, and didn't own a home during the three years preceding the purchase, you may be eligible. For qualifying purchases made in 2008, the maximum amount of the credit equals either 10% of the home's price or $7,500 ($3,750 if you are married, but filing separately), whichever is less. One hitch: You must repay the “credit” over 15 years by either owing more in taxes or receiving a smaller refund.
4. Recovery Rebate Credit: If (A) you didn’t qualify for the full $600 or $1,200 from last year’s Economic Stimulus Act and (B) if your income changed substantially between 2007 and 2008, you may now be able to collect that money. Worth finding out.
Savings & Tax Deductions
The government also offers opportunities to reduce your taxable income by deductions. These include the following:
5. Your 2008 IRA Contribution: You have until April 15, 2009 to contribute up to $5,000 each for you and your spouse for 2008 (add another $1,000 for each person age 50 or older). If you contribute to a traditional IRA, you may be able to deduct all or a portion of that amount, depending on whether you participate in an employer-provided retirement plan and your adjusted gross income. If you contribute to a Roth IRA, however, you cannot deduct your contributions (though all your qualified distributions will be received tax-free). A “qualified distribution” is any distribution from a Roth IRA that meets the following two tests:
Five-Year Test: The five-year test is satisfied beginning on January 1 of the fifth year after the first year for which you made a contribution to a Roth IRA. If you made your first Roth IRA contribution for 2004, for example, any distribution from a Roth IRA will satisfy the five-year test if the distribution occurs on or after January 1, 2009.
Type of Distribution: Even after you meet the five-year test, only certain types of distributions are treated as qualified distributions. There are four types of qualified distributions:
Distributions made on or after the date you reach age 59½
Distributions made to your beneficiary after your death
If you become disabled, distributions attributable to your disability
"Qualified first-time homebuyer distributions"
6. Your 2009 IRA Contribution: You have until April 15, 2010, to make this contribution. You can make it in one lump payment then, or you can spread it over the next 12 months.
7. Kiddie-tax Limits: For 2008, a child under age 19 (or 24 if a full-time student) can earn up to $1,800 in investment income (up $100 from 2007). Above that amount, earnings are taxed at the parent’s rate.
8. Real Estate Tax Deduction: There is an additional standard deduction for those who don’t itemize their deductions, but pay real estate taxes. The additional deduction amount is equal to the amount of real estate taxes paid, up to $500 for single filers or $1,000 for joint filers. This deduction is available for the 2008 and 2009 tax years and increases your standard deduction.
9. Tuition and Fees Deduction: You may be able to deduct qualified tuition and required enrollment fees up to $4,000 that you pay for yourself, your spouse or a dependent. You do not have to itemize to take this deduction. However, you cannot take both the tuition and fees deduction and education credits (Hope & Lifetime Learning Credits) for the same student in the same year. Income limits and other special rules apply.
10. Taxpayers over age 65: Married taxpayers can add $1,050 to the regular standard deduction and singles will get an additional $1,3504.
Two More Things to Remember
First, the above contains general tax concepts only. Before doing anything, please talk to a qualified tax advisor.
Second, if you need info and ideas about IRAs,Individual 401ks, annuities, municipal bonds, and other tax-advantaged investments, please get in touch.
1Tax Credits Worth Pursuing This year, SmartMoney.com (January 2009)
2Ten Things You May not Know About the Earned Income Tax Credit, Internal Revenue Service (January 2009)
3A Sneak Peak at 2008 Tax Savings, MSNBC.com (9/27/07)
4IRS Reminder: Make Use of Recent Tax Law Changes for 2008…Internal Revenue Service, IRS.gov (December 2008)
*Issued by New York Life Insurance and Annuity Corporation (A Delaware Corporation)
Before you file your 2008 income tax return with the IRS, review these ten tax tips. Between some tax deductions here, and a tax credit or two there, you could shave thousands of dollars off your tax bill. So, do your homework, and be sure to talk to your accountant or other tax advisor to make sure you qualify.
Start With Tax Credits1
See if you qualify for any of these four tax credits. (A tax credit is powerful money. It lets you deduct the amount from your tax bill … not just from your taxable income!)
1. Earned Income Tax Credit: You may have not been eligible in the past. However, if your income decreased in 2008, this credit, worth a maximum of $4,824, is worth a second look. Even if it didn’t, the IRS says that a quarter of all eligible taxpayers fail to take this credit2.
2. Child Tax Credit & Personal Exemption: If you have minor children, you may be eligible for an additional $1,000 credit on top of the regular $3,500 exemption you can claim for each dependent. Adults can also claim $3,500 each as a personal exemption. There are income limits and other qualifying criteria3.
3. First-Time Homeowner Credit: This is really a no-interest loan from Uncle Sam. If you bought -- or will buy -- a home on or after April 9, 2008, and before December 1, 2009, and didn't own a home during the three years preceding the purchase, you may be eligible. For qualifying purchases made in 2008, the maximum amount of the credit equals either 10% of the home's price or $7,500 ($3,750 if you are married, but filing separately), whichever is less. One hitch: You must repay the “credit” over 15 years by either owing more in taxes or receiving a smaller refund.
4. Recovery Rebate Credit: If (A) you didn’t qualify for the full $600 or $1,200 from last year’s Economic Stimulus Act and (B) if your income changed substantially between 2007 and 2008, you may now be able to collect that money. Worth finding out.
Savings & Tax Deductions
The government also offers opportunities to reduce your taxable income by deductions. These include the following:
5. Your 2008 IRA Contribution: You have until April 15, 2009 to contribute up to $5,000 each for you and your spouse for 2008 (add another $1,000 for each person age 50 or older). If you contribute to a traditional IRA, you may be able to deduct all or a portion of that amount, depending on whether you participate in an employer-provided retirement plan and your adjusted gross income. If you contribute to a Roth IRA, however, you cannot deduct your contributions (though all your qualified distributions will be received tax-free). A “qualified distribution” is any distribution from a Roth IRA that meets the following two tests:
Five-Year Test: The five-year test is satisfied beginning on January 1 of the fifth year after the first year for which you made a contribution to a Roth IRA. If you made your first Roth IRA contribution for 2004, for example, any distribution from a Roth IRA will satisfy the five-year test if the distribution occurs on or after January 1, 2009.
Type of Distribution: Even after you meet the five-year test, only certain types of distributions are treated as qualified distributions. There are four types of qualified distributions:
Distributions made on or after the date you reach age 59½
Distributions made to your beneficiary after your death
If you become disabled, distributions attributable to your disability
"Qualified first-time homebuyer distributions"
6. Your 2009 IRA Contribution: You have until April 15, 2010, to make this contribution. You can make it in one lump payment then, or you can spread it over the next 12 months.
7. Kiddie-tax Limits: For 2008, a child under age 19 (or 24 if a full-time student) can earn up to $1,800 in investment income (up $100 from 2007). Above that amount, earnings are taxed at the parent’s rate.
8. Real Estate Tax Deduction: There is an additional standard deduction for those who don’t itemize their deductions, but pay real estate taxes. The additional deduction amount is equal to the amount of real estate taxes paid, up to $500 for single filers or $1,000 for joint filers. This deduction is available for the 2008 and 2009 tax years and increases your standard deduction.
9. Tuition and Fees Deduction: You may be able to deduct qualified tuition and required enrollment fees up to $4,000 that you pay for yourself, your spouse or a dependent. You do not have to itemize to take this deduction. However, you cannot take both the tuition and fees deduction and education credits (Hope & Lifetime Learning Credits) for the same student in the same year. Income limits and other special rules apply.
10. Taxpayers over age 65: Married taxpayers can add $1,050 to the regular standard deduction and singles will get an additional $1,3504.
Two More Things to Remember
First, the above contains general tax concepts only. Before doing anything, please talk to a qualified tax advisor.
Second, if you need info and ideas about IRAs,Individual 401ks, annuities, municipal bonds, and other tax-advantaged investments, please get in touch.
1Tax Credits Worth Pursuing This year, SmartMoney.com (January 2009)
2Ten Things You May not Know About the Earned Income Tax Credit, Internal Revenue Service (January 2009)
3A Sneak Peak at 2008 Tax Savings, MSNBC.com (9/27/07)
4IRS Reminder: Make Use of Recent Tax Law Changes for 2008…Internal Revenue Service, IRS.gov (December 2008)
*Issued by New York Life Insurance and Annuity Corporation (A Delaware Corporation)
8 ways to leave a mess for your heirs ( Estate Planning ) from bankrate.com
8 ways to leave a mess behind
By Sheyna Steiner • Bankrate.com
1. Stay ignorant about the process
2. Be clueless about the role of wills
3. Put your kid's name on the deed
4. Dawdle indefinitely
5. Don't trust trusts
6. Leave messy financial records
7. Give your ex-spouse a parting gift
8. Let others figure out what you want
From Financial Literacy,Chapter 11
http://www.bankrate.com/nltrack/news/financial_literacy/Nov07_planning-heirs_main_a1.asp?s=11&caret=70
By Sheyna Steiner • Bankrate.com
1. Stay ignorant about the process
2. Be clueless about the role of wills
3. Put your kid's name on the deed
4. Dawdle indefinitely
5. Don't trust trusts
6. Leave messy financial records
7. Give your ex-spouse a parting gift
8. Let others figure out what you want
From Financial Literacy,Chapter 11
http://www.bankrate.com/nltrack/news/financial_literacy/Nov07_planning-heirs_main_a1.asp?s=11&caret=70
Look Up Insurance Company Rating (Standard and Poors)
What the Insurance Company Ratings Mean (Standard & Poors)
AAA
An insurer rated 'AAA' has EXTREMELY STRONG financial security characteristics. 'AAA' is the highest Insurer Financial Strength Rating assigned by Standard & Poor's.
AA
An insurer rated 'AA' has VERY STRONG financial security characteristics, differing only slightly from those rated higher.
A
An insurer rated 'A' has STRONG financial security characteristics, but is somewhat more likely to be affected by adverse business conditions than are insurers with higher ratings.
BBB
An insurer rated 'BBB' has GOOD financial security characteristics, but is more likely to be affected by adverse business conditions than are higher rated insurers.
An insurer rated 'BB' or lower is regarded as having vulnerable characteristics that may outweigh its strengths. 'BB' indicates the least degree of vulnerability within the range; 'CC' the highest. BB
An insurer rated 'BB' has MARGINAL financial security characteristics. Positive attributes exist, but adverse business conditions could lead to insufficient ability to meet financial commitments.
B
An insurer rated 'B' has WEAK financial security characteristics. Adverse business conditions will likely impair its ability to meet financial commitments.
CCC
An insurer rated 'CCC' has VERY WEAK financial security characteristics, and is dependent on favorable business conditions to meet financial commitments.
CC
An insurer rated 'CC' has EXTREMELY WEAK financial security characteristics and is likely not to meet some of its financial commitments.
R
An insurer rated 'R' is under REGULATORY SUPERVISION owing to its financial condition. During the pendency of the regulatory supervision, the regulators may have the power to favor one class of obligations over others or pay some obligations and not others. The rating does not apply to insurers subject only to nonfinancial actions such as market conduct violations.
NR
An insurer rated 'NR' is NOT RATED, which implies no opinion about the insurer's financial security.
Plus (+) or minus (-) signs following ratings from 'AA' to 'CCC' show relative standing within the major rating categories.
Insurance Company Ratings Slip (Wall Street Journal)
INSURANCE MARCH 17, 2009, 9:38 A.M. ET Worry Grows Over Insurers As Ratings Slip
More Companies Weakened By Bad Investment Choices; Shenandoah Sales Moratorium
By M.P. MCQUEEN
While consumers have been fretting about the safety of their policies at large, publicly traded insurers, some smaller, less-watched companies have been running into trouble too.
Insurers of all sizes are being slammed by investment losses. Some also are being dragged down by higher-than-expected claims in areas like long-term-care insurance. Regulators have taken over companies with policies owned by more than half a million people in more than 30 states, including life insurance and annuities. At one insurer, a receiver has imposed a moratorium on policyholders taking cash out of their policies or turning them in for cash.
A Question of Policies
Consumers are growing concerned as insurers' ratings are falling. Here's what they should keep in mind:
States regulate the amount of capital and reserves insurers need to keep.Some companies have run into trouble by falling short of these levels because of bad investments.Regulators try to work out problems with insurers so that policy owners are protected.Shenandoah Life Insurance Co., a small insurer based in Roanoke, Va., recently fell below state requirements for capital and cash reserves because of its investments in mortgage-backed securities, which were hammered in the housing meltdown. Shenandoah has stopped selling new policies and has instituted a moratorium on policyholders cashing out, selling, surrendering or borrowing from their contracts. The company is continuing to pay death and annuity benefits as well as health-insurance claims. The state receiver who has been running Shenandoah since last month declined to comment.
The life-insurance industry's troubles are causing angst for policyholders, even at institutions still regarded as solid, driving some consumers to delve deeper into the financial health of their insurers. Phyllis Myers of Washington, D.C., says she and her husband, who both work for nonprofit institutions, recently looked into the financial strength of Teachers Insurance & Annuity Association, part of retirement giant TIAA-CREF, which issues their annuities -- an insurance contract that promises a stream of income over a period of time.
Ms. Myers, an environmental consultant, says she was somewhat reassured by TIAA's triple-A ratings. But, she adds, "we are not sure right now how much confidence we have in the ratings based on what I am reading in the paper and hearing on the television."
Such behemoths as MetLife Inc., Hartford Financial Services Group Inc. and Prudential Financial Inc. have all been hit with slumping share prices and downgrades in their financial-strength ratings -- the main gauge used to assess an insurer's ability to pay claims -- though the ratings remain strong or very strong.
Worst Blowups
Some of the worst blowups so far have taken place at insurers that offer long-term-care policies to defray nursing-home expenses. The problem here was a higher-than-expected level of claims, partly because of owners' longevity, and partly because few customers are letting their policies lapse. Senior Health Insurance Co. in Pennsylvania, a unit of Conseco Inc., and Penn Treaty American Corp. and one of its subsidiaries recently were taken over by regulators in Pennsylvania. That prompted worries that policies won't pay off when they're needed, or that people will get a much-smaller benefit than they expected for their premiums.
"In good times the issues get swept under the rug, and in bad times rough spots show up," says Martin Weiss, president of Weiss Research Inc. in Jupiter, Fla., an investment-research firm that also rates insurers.
More trouble could be on the horizon. More than a dozen major insurers have seen ratings downgrades in recent weeks, and several have dropped into categories reflecting relatively weaker financial health. Analysts say their ability to pay claims could be affected by continuing investment losses.
They include Phoenix Cos., of Hartford, Conn., and its subsidiaries, which sell life insurance and annuities to the affluent, and Security Benefit Life Insurance Co. of Topeka, Kan. Phoenix has been weighed down by problematic investments in mortgage-backed securities. The company recently announced that its top two distributors had ceased to sell its policies. A Phoenix spokeswoman says the company's key financial "metrics remain solid."
Security Benefit, which sells 403(b) retirement plans and annuities, and which recently acquired mutual-fund company Rydex Investments, was recently downgraded for the fourth time since 2005. It is now at the top of the "vulnerable" range, according to the scale used by A.M. Best -- the range at which ratings agencies have determined that an insurer's financial condition could be subject to outside economic factors. Its problems stem from exposure to financial derivatives and subprime mortgages. Security Benefit executives and Kansas state regulators say they expect the company to be able to manage its way through.
In an unusual situation, Shenandoah was suddenly taken over by Virginia regulators last month after receiving a "good" financial-strength rating from a ratings firm just weeks earlier. The company has about 200,000 individual and group life-insurance policies and 21,000 annuity contracts in force in more than 30 states, mostly in the South. Regulators stepped in after a proposed merger with an Indianapolis financial-services company fell through. They said they hope to get the company back on its feet and avoid liquidation, but "it is too early to determine whether that can be achieved."
Virginia's state guaranty association, which compensates policy owners when an insurer is liquidated, protects life insurance and individual annuity cash values up to $100,000, and death benefits up to $300,000. Guaranty-fund limits vary by state; Virginia's are typical. For those in your state check the Web site of the National Organization of Life and Health Insurance Guaranty Associations, www.nolhga.com.
Financial Stability
"The industry continues to hold capital and surplus well in excess of the minimum requirements -- even after the detrimental effects from 2008," says Therese M. Vaughan, the CEO of the National Association of Insurance Commissioners.
Even if they're not panicking, financial advisers and their clients are doing some soul-searching after hearing about some big insurers' troubles. Henry Montag, a certified financial planner in Jericho, N.Y., said he hasn't switched or sold any of his own or clients' contracts lately, but he is discussing the solvency issue with clients.
"We are in uncharted waters," he says. "So many of the major companies like the Prudentials and Hartfords have been downgraded, that I am bringing it up rather than waiting for clients to bring it up." Mr. Montag is now pairing new clients with insurers "that are more financially stable and secure even if the premiums are higher."
More Companies Weakened By Bad Investment Choices; Shenandoah Sales Moratorium
By M.P. MCQUEEN
While consumers have been fretting about the safety of their policies at large, publicly traded insurers, some smaller, less-watched companies have been running into trouble too.
Insurers of all sizes are being slammed by investment losses. Some also are being dragged down by higher-than-expected claims in areas like long-term-care insurance. Regulators have taken over companies with policies owned by more than half a million people in more than 30 states, including life insurance and annuities. At one insurer, a receiver has imposed a moratorium on policyholders taking cash out of their policies or turning them in for cash.
A Question of Policies
Consumers are growing concerned as insurers' ratings are falling. Here's what they should keep in mind:
States regulate the amount of capital and reserves insurers need to keep.Some companies have run into trouble by falling short of these levels because of bad investments.Regulators try to work out problems with insurers so that policy owners are protected.Shenandoah Life Insurance Co., a small insurer based in Roanoke, Va., recently fell below state requirements for capital and cash reserves because of its investments in mortgage-backed securities, which were hammered in the housing meltdown. Shenandoah has stopped selling new policies and has instituted a moratorium on policyholders cashing out, selling, surrendering or borrowing from their contracts. The company is continuing to pay death and annuity benefits as well as health-insurance claims. The state receiver who has been running Shenandoah since last month declined to comment.
The life-insurance industry's troubles are causing angst for policyholders, even at institutions still regarded as solid, driving some consumers to delve deeper into the financial health of their insurers. Phyllis Myers of Washington, D.C., says she and her husband, who both work for nonprofit institutions, recently looked into the financial strength of Teachers Insurance & Annuity Association, part of retirement giant TIAA-CREF, which issues their annuities -- an insurance contract that promises a stream of income over a period of time.
Ms. Myers, an environmental consultant, says she was somewhat reassured by TIAA's triple-A ratings. But, she adds, "we are not sure right now how much confidence we have in the ratings based on what I am reading in the paper and hearing on the television."
Such behemoths as MetLife Inc., Hartford Financial Services Group Inc. and Prudential Financial Inc. have all been hit with slumping share prices and downgrades in their financial-strength ratings -- the main gauge used to assess an insurer's ability to pay claims -- though the ratings remain strong or very strong.
Worst Blowups
Some of the worst blowups so far have taken place at insurers that offer long-term-care policies to defray nursing-home expenses. The problem here was a higher-than-expected level of claims, partly because of owners' longevity, and partly because few customers are letting their policies lapse. Senior Health Insurance Co. in Pennsylvania, a unit of Conseco Inc., and Penn Treaty American Corp. and one of its subsidiaries recently were taken over by regulators in Pennsylvania. That prompted worries that policies won't pay off when they're needed, or that people will get a much-smaller benefit than they expected for their premiums.
"In good times the issues get swept under the rug, and in bad times rough spots show up," says Martin Weiss, president of Weiss Research Inc. in Jupiter, Fla., an investment-research firm that also rates insurers.
More trouble could be on the horizon. More than a dozen major insurers have seen ratings downgrades in recent weeks, and several have dropped into categories reflecting relatively weaker financial health. Analysts say their ability to pay claims could be affected by continuing investment losses.
They include Phoenix Cos., of Hartford, Conn., and its subsidiaries, which sell life insurance and annuities to the affluent, and Security Benefit Life Insurance Co. of Topeka, Kan. Phoenix has been weighed down by problematic investments in mortgage-backed securities. The company recently announced that its top two distributors had ceased to sell its policies. A Phoenix spokeswoman says the company's key financial "metrics remain solid."
Security Benefit, which sells 403(b) retirement plans and annuities, and which recently acquired mutual-fund company Rydex Investments, was recently downgraded for the fourth time since 2005. It is now at the top of the "vulnerable" range, according to the scale used by A.M. Best -- the range at which ratings agencies have determined that an insurer's financial condition could be subject to outside economic factors. Its problems stem from exposure to financial derivatives and subprime mortgages. Security Benefit executives and Kansas state regulators say they expect the company to be able to manage its way through.
In an unusual situation, Shenandoah was suddenly taken over by Virginia regulators last month after receiving a "good" financial-strength rating from a ratings firm just weeks earlier. The company has about 200,000 individual and group life-insurance policies and 21,000 annuity contracts in force in more than 30 states, mostly in the South. Regulators stepped in after a proposed merger with an Indianapolis financial-services company fell through. They said they hope to get the company back on its feet and avoid liquidation, but "it is too early to determine whether that can be achieved."
Virginia's state guaranty association, which compensates policy owners when an insurer is liquidated, protects life insurance and individual annuity cash values up to $100,000, and death benefits up to $300,000. Guaranty-fund limits vary by state; Virginia's are typical. For those in your state check the Web site of the National Organization of Life and Health Insurance Guaranty Associations, www.nolhga.com.
Financial Stability
"The industry continues to hold capital and surplus well in excess of the minimum requirements -- even after the detrimental effects from 2008," says Therese M. Vaughan, the CEO of the National Association of Insurance Commissioners.
Even if they're not panicking, financial advisers and their clients are doing some soul-searching after hearing about some big insurers' troubles. Henry Montag, a certified financial planner in Jericho, N.Y., said he hasn't switched or sold any of his own or clients' contracts lately, but he is discussing the solvency issue with clients.
"We are in uncharted waters," he says. "So many of the major companies like the Prudentials and Hartfords have been downgraded, that I am bringing it up rather than waiting for clients to bring it up." Mr. Montag is now pairing new clients with insurers "that are more financially stable and secure even if the premiums are higher."
Stock-Free Portfolio (from Kiplinger's in the Washington Post)
A Stock-Free Portfolio
Jeffrey R. Kosnett, Senior Editor,
Kiplinger.com
Wednesday, March 11, 2009; 12:00 AM
GOLD (5%)
The yellow metal doesn't pay any income, and it's plenty volatile. But it's a good defense against inflation -- which will surely rear its head when business picks up steam -- and the likelihood of a weaker dollar down the road. With iShares Comex Gold Trust (symbol IAU), you can track the price of gold without having to buy the stuff and store it. It recently traded at $90 per share.
CASH (25%)
With yields generally at less than 1%, cash is trash nowadays. But you won't lose money on your cash investments, and their yields will pick up when the economy recovers and the Federal Reserve begins to lift short-term interest rates. (For ideas on how to invest your no-risk money, see Where to Stash Your Cash Now.)
PREFERRED SHARES OF REAL ESTATE INVESTMENT TRUSTS (15%)
REIT preferreds, like REIT common stocks, have been clobbered this year. As a result, they are delivering extraordinarily high yields. For instance, preferred shares of both Alexandria Real Estate Equities and Corporate Office Properties trust recently yielded 11%, and a Duke Realty preferred yielded 14% (for more suggestions, see A Real Estate Play That Pays).
TAX-FREE-INCOME (15%)
Although interest from municipal bonds is generally exempt from federal income tax, many high-quality munis are yielding far more than Treasuries of like maturity. Some AAA-rated tax-free bonds to consider: Puerto Rico 5.5% general-obligation bond due in 2019. Yields 4.7% to maturity. New Jersey 5.25% transportation bond due in 2022. Yields 4.0% to maturity. University of Texas 5.25% revenue bond due in 2022. Yields 4.0% to maturity.
ENERGY (15%)
Thanks to the recession, oil and natural-gas prices have plunged. But those prices have fallen too far and will almost certainly rise when global economies recover. Two exchange-traded funds -- U.S. Oil Trust (USO) and U.S. Natural Gas Fund (UNG) -- follow these commodities and will appreciate when oil and gas turn up.
BLUE-SHIP IOUS (15%)
These days, high-quality corporate bonds sport unusually generous yields (see Best Buys in Bonds. We found a few that pay well, can't be called before maturity and aren't issued by financial firms: Wal-Mart 5.875% bond due in 2027. Yields 5.6% to maturity. Rated AA by Standard & Poor's. Eli Lilly 7.125% bond due in 2025. Yields 5.4% to maturity. Rated AA. Northern States Power 7.125% bond due in 2025. Yields 6.2% to maturity. Rated A.
Jeffrey R. Kosnett, Senior Editor,
Kiplinger.com
Wednesday, March 11, 2009; 12:00 AM
GOLD (5%)
The yellow metal doesn't pay any income, and it's plenty volatile. But it's a good defense against inflation -- which will surely rear its head when business picks up steam -- and the likelihood of a weaker dollar down the road. With iShares Comex Gold Trust (symbol IAU), you can track the price of gold without having to buy the stuff and store it. It recently traded at $90 per share.
CASH (25%)
With yields generally at less than 1%, cash is trash nowadays. But you won't lose money on your cash investments, and their yields will pick up when the economy recovers and the Federal Reserve begins to lift short-term interest rates. (For ideas on how to invest your no-risk money, see Where to Stash Your Cash Now.)
PREFERRED SHARES OF REAL ESTATE INVESTMENT TRUSTS (15%)
REIT preferreds, like REIT common stocks, have been clobbered this year. As a result, they are delivering extraordinarily high yields. For instance, preferred shares of both Alexandria Real Estate Equities and Corporate Office Properties trust recently yielded 11%, and a Duke Realty preferred yielded 14% (for more suggestions, see A Real Estate Play That Pays).
TAX-FREE-INCOME (15%)
Although interest from municipal bonds is generally exempt from federal income tax, many high-quality munis are yielding far more than Treasuries of like maturity. Some AAA-rated tax-free bonds to consider: Puerto Rico 5.5% general-obligation bond due in 2019. Yields 4.7% to maturity. New Jersey 5.25% transportation bond due in 2022. Yields 4.0% to maturity. University of Texas 5.25% revenue bond due in 2022. Yields 4.0% to maturity.
ENERGY (15%)
Thanks to the recession, oil and natural-gas prices have plunged. But those prices have fallen too far and will almost certainly rise when global economies recover. Two exchange-traded funds -- U.S. Oil Trust (USO) and U.S. Natural Gas Fund (UNG) -- follow these commodities and will appreciate when oil and gas turn up.
BLUE-SHIP IOUS (15%)
These days, high-quality corporate bonds sport unusually generous yields (see Best Buys in Bonds. We found a few that pay well, can't be called before maturity and aren't issued by financial firms: Wal-Mart 5.875% bond due in 2027. Yields 5.6% to maturity. Rated AA by Standard & Poor's. Eli Lilly 7.125% bond due in 2025. Yields 5.4% to maturity. Rated AA. Northern States Power 7.125% bond due in 2025. Yields 6.2% to maturity. Rated A.
7 Costly Mistakes When Leaving a Job (Marketwatch)
Seven costly mistakes workers make when they leave a job
By Robert Powell, MarketWatch
Last update: 6:35 p.m. EDT March 11, 2009BOSTON (MarketWatch) -- There's many a slip twixt cup and lip. Most people, conventional wisdom might suggest, would roll their entire 401(k) over to an IRA after they leave their employer. But according to data released last week, many workers only roll a portion of their retirement funds into an IRA.
According to the Employee Benefit Research Institute, those with $50,000 or more in their 401(k) roll over on average 72.4% of their balance after leaving their employer while those with $1,000 to $2,499 in their 401(k) plan roll over on average just 19.5%.
There are plenty of reasons why someone might roll just a portion over to an IRA. But the consequences, in all but a few cases, can be severe. Uncle Sam will tax the distribution at ordinary income rates, plus assess a 10% penalty.
And that, say experts, is just one of seven easily avoided mistakes workers make after they part ways with their employer:
1. Failing to roll
The first big mistake is, of course, not doing a rollover at all, according to Beverly DeVeny, the IRA Technical Consultant at Ed Slott and Co. If you don't do a rollover, you'll be taxed. Plus, you'll fall even further behind in your attempt to build a nest egg.
2. Forgetting a direct rollover
DeVeny says plan participants should take direct rollovers in order to avoid the 20% withholding rules. "But, if withholding has been done, you do have 60 days to replace the withheld amount with personal funds and thus roll over the entire plan balance," she said. Make sure you talk to your HR or employee benefit department about your rollover before transferring any money.
3. Failing to account for plan loans
If you borrowed money from your 401(k) and there's an outstanding balance on your loan when you leave your employer, beware of this scenario playing out. In some cases, your employer will deduct the loan from the total distribution. You can, of course, replace the "paid off" amount with funds from other accounts and then roll over the entire balance.
But if you don't replace the "paid off" amount, Uncle Sam will view the amount of the loan as a taxable distribution. "If the funds are not rolled over, the participant will owe income tax on the loan balance that was paid off," said DeVeny.
Given what's happened to the market of late, there's another worst-case scenario for which there is seemingly no precedent. If a plan balance is no longer large enough to pay off a plan loan it might be time to call in an attorney or two.
4. Leaving money on the table
"Whether you have a 401(k), 403(b), or 457(b), be sure any profit-sharing and matching has been credited to your account before leaving your employer," said Aaron Skloff, a certified financial planner with Skloff Financial Group. This is especially true if you have the ability to time your departure from your employer. According to Skloff, profit-sharing and matching contributions typically aren't made on the same schedule as employee contributions.
What's more, consider your vesting schedule. It would be a big mistake to leave before all the money owed you hits your account or before the anniversary date on your vesting schedule. "You don't want to be a creditor of your former employer," said Skloff.
5. Failing to consider net unrealized appreciation options
In some cases, you might own company stock in your 401(k). And, as hard to believe as it may sound, that stock might be trading above the price you paid, or your cost basis. If that's true for you, consider taking advantage of the net unrealized appreciation rules, said Skloff.
Instead of rolling your entire 401(k) balance over to an IRA, roll everything but your company stock into an IRA. You would then distribute the stock to a taxable account and pay ordinary income tax on the cost basis of the stock. Then later on, if you sell the stock above the cost basis, you would pay a capital gains tax on the appreciated value -- the difference between the sale price and basis.
The rules can be tricky so be sure to consult with a qualified professional before trying this at home.
6. Eschewing a Roth conversion
It's not so much a mistake to avoid as it is a strategy. Yes, the new buzz phrase of the day is something called "tax diversification." You want to have the ability to withdraw money from accounts that provide you with the greatest after-tax amount of money. That means having a traditional IRA and a Roth IRA. So, for instance, if you don't have a Roth IRA, now might be the time to consider it. Consider doing a Roth conversion with all or some of the money in your 401(k), especially, DeVeny said, if there are after-tax dollars in the plan.
7. Other mistakes to avoid
Make sure you open all your mail. "If the plan sends you a check (either by accident or because you requested it), you only have 60 days to roll it over to another tax-deferred account, said DeVeny.
Make sure all your paperwork is in order, said Skloff. In some cases missing the employer's signature on this or that form could result in big tax problems.
Robert Powell has been a journalist covering personal finance issues for more than 20 years, writing and editing for publications such as The Wall Street Journal, the Financial Times, and Mutual Fund Market News.
Hidden Tax Tips for Entrepreneurs (Business Week)
Small Business Financing February 17, 2009, 4:43PM EST
Hidden Tax Tips for Entrepreneurs
Twenty-five tax deductions you may not have heard of—but should
By John Tozzi
Are you missing tax deductions you're entitled to? Small business owners, self-employed workers, and independent contractors can write off many legitimate business expenses immediately, reducing the amount of income on which they pay taxes. But if you overlook applicable deductions or fail to keep adequate records that will back up your write-offs during an audit, you give up opportunities to cut your tax bill.
The Schedule C tax form used by sole proprietors to report business profit or loss has 21 line items for business expenses—including such catch-all categories as "office expense," "supplies," and "other expenses." The tax forms for partnerships, LLCs, and S-corps are similarly broad. "It doesn't even begin to hint at all the things that a business can legitimately deduct," says Bernard Kamoroff, a certified public accountant and author of 422 Tax Deductions for Businesses & Self Employed Individuals. Don't expect your accountant to find all the deductions you qualify for—your accountant doesn't know your spending as intimately as you do.
Kamoroff says business owners can reduce their tax bills by deducting expenditures that the Internal Revenue Service doesn't explicitly outline, but are nonetheless legitimate business expenses. In general, a purchase must be "ordinary and necessary" in your trade to be deductible. Few of the often-overlooked write-offs on their own will cut your tax bill substantially, but in aggregate, they can be worth the time and effort to track and deduct them. "They're all nickel dime, but boy they can add up," Kamoroff says.
Vehicle Deductions Often Overlooked
There are a few big deductions that can significantly reduce your tax bill if you qualify. New investments of up to $250,000 in equipment, vehicles, or software can be written off immediately, rather than depreciated over future years, under the Section 179 deduction. If you have a home office that you use exclusively as your primary place of business, you can deduct costs for the business use of your home. And if you use your car or truck for business, you can deduct work-related expenses for gas, maintenance, insurance, and other costs, either using the IRS's standard mileage rate or by calculating the actual costs. The home office and vehicle deductions are two of the most overlooked write-offs, according to the National Association for the Self-Employed.
Small business owners who travel for business may also deduct some of their travel costs. Business-related meals and entertainment are only 50% deductible, although you can't write off expenses that are considered "lavish and extravagant." If your trip is exclusively for business, lodging and transportation costs are fully deductible. If the trip mixes business and personal matters, you may still be able to write off some business-related expenses.
Aside from big write-offs like travel or home-office deductions, plenty of other expenditures can save you money on taxes. If more than half your cell phone use is for business, you can deduct the cost of the business-related calls. Write off your Web hosting and domain name charges. And deduct the cost of business-related books, magazines, and newspaper subscriptions.
Meticulous Records a Must
The key to taking these small deductions is keeping track of your expenditures, so that you can show an auditor that your write-offs are truly business-related. "It is very important that they keep meticulous records, because the IRS is going to be pretty aggressive," says Chas Roy-Chowdhury, head of taxation for the Association of Chartered Certified Accountants. But business owners who take legitimate deductions, and have the receipts, invoices, or other records to back them up, can maximize their tax savings.
Tax Deductions You've Never Heard Of
Are you leaving tax savings on the table? Plenty of legitimate business expenses aren't spelled out by the Internal Revenue Service. It's up to you to find them—and keep records that will show they're reasonable if you get audited. Most "ordinary and necessary" business expenses can be deducted, says Bernard Kamoroff, a CPA and author of "422 Tax Deductions for Businesses & Self-Employed Individuals." Here are 25 write-offs Kamoroff identifies that you may qualify for without even knowing. When in doubt, check with your accountant to see if these apply to you.
ATM Fees, Credit-Card Fees, and Interest
You can deduct ATM fees, credit-card fees, and other bank charges incurred on your business accounts.
Category this deduction falls into: Office expenses; interest
Books, Magazines, and Newspapers
Business-related books and subscriptions to magazines, newspapers, and trade publications are deductible.
Category this deduction falls into: Office expenses
Business Cards
Deduct the cost of business cards for yourself and your employees.
Category this deduction falls into: Office expenses
Cell PhonesIf more than half of your cell-phone use is for business, you can deduct that proportion of the cost, up to the full amount if you have a dedicated cell phone for your company. But if you use your cell phone for business less than half the time, you can't deduct it.
Category this deduction falls into: Office expenses
Child Care
If you offer employees child care, you can deduct the cost. You can offer employees up to $5,000 a year in dependent-care benefits that are excluded from their wages, tax-free to them and deductible for you. Employees may qualify for other dependent-care tax credits. For more, check the IRS guidelines.
Category this deduction falls into: Employee benefit programs
Cleaning Service
The cost of a cleaner or janitor to maintain your place of work is deductible.
Category this deduction falls into: Office expense
Coffee and Snacks
Write off what you pay to keep yourself and your staff caffeinated. Other small office snacks are deductible, but meals for yourself are not, and the cost of meals provided to employees can only be deducted if there's a business reason for having them eat at work.
Category this deduction falls into: Office expenses
Company Parties
Deduct the entire cost of a party where all employees are invited. Other business parties or events that are thrown to promote the business are considered entertainment, and are therefore 50% deductible.
Category this deduction falls into: Office expense, entertainment.
Disabled Access
Small businesses can get credits and deductions for the cost of making their place of business accessible to people with disabilities. For more information, see the IRS guide.
Domestic Production
Even nonmanufacturers may qualify for a break called the Domestic Production Activities Deduction. Firms including architects, engineers, software makers, and film producers all may be eligible for this deduction, which is equal to 6% of net income from domestic production activities. It maxes out at 50% of W-2 wages, however, so non-employer firms don't qualify. For more, see the IRS instructions.
Dues
Deduct membership fees in trade organizations, professional groups, and chambers of commerce. Portions of dues that are for political lobbying are not deductible, and dues for political clubs or recreational groups aren't business expenses and can't be deducted.
Category this deduction falls into: Other expenses
Garbage Pickup
If you pay to have your trash hauled, you can deduct the cost. Some manufacturers may have to add this to the cost of inventory.
Category this deduction falls into: Utilities
Greeting CardsGreeting cards to clients and prospects count as tax-deductible expenses.
Category this deduction falls into: Office expenses
Internet Access
You can deduct the cost of your Internet access, but if you use the connection for both business and personal purposes, you can only deduct the amount used for business.
Category this deduction falls into: Office expenses
Lists
If you buy or rent lists of e-mail addresses, mailing addresses, or phone numbers, you can write off the cost.
Category this deduction falls into: Advertising
Parking and Tolls
Business-related parking costs beyond what you pay to park at your regular place of work are deductible, as are tolls paid during business travel. Parking violations and other tickets are not.
Category this deduction falls into: Car and truck expenses
Postage and Mailing
Stamps, other mailing costs, and the cost of renting post-office boxes are deductible.
Category this deduction falls into: Office expenses
Research and Development
You can deduct the cost of developing new products or improving existing ones. For more on this, see this IRS article on R&D deductions.
Category this deduction falls into: Other expenses
Retirement Plans
Contributions to tax-deferred retirement plans such as IRAs or Self-Employed Pensions can reduce your tax bill, because that income won't be taxed until you withdraw it from the account. You can count contributions to these plans made through Apr. 15, 2009 for the 2008 tax year. You can also deduct contributions made to employee retirement plans. For more information, see the IRS instructio
Seminars, Classes, and Training
Education that improves your knowledge and skills in your current business is deductible, but training for an unrelated trade is not. Employers can fully deduct the cost of job-related education for their workers. Employers who pay for nonjob-related education for workers can write off up to $5,250 as part of a formal educational assistance program.
Category this deduction falls into: Other expenses, employee benefit programs
Shipping
If you pay for customers' shipping and handling on the goods you sell, you can deduct those costs.
Category this deduction falls into: Other expenses.
Software
The cost of software can be depreciated over three years or deducted immediately under the Section 179 expensing, which lets you write off up to $250,000 in capital expendiutures.
Category this deduction falls into: Office expenses or depreciation.
Tax Preparation
You can deduct what you pay a tax preparer for the business portion of your taxes.
Category this deduction falls into: Legal and professional services
Trade Shows
Write off the entrance fees for trade shows, conferences, and other industry meetings. Travel costs and meal expenses may be deductible under the rules for business travel.
Category this deduction falls into: Other expenses
Web site
Deduct your hosting fees and the cost of your domain name. You can generally deduct the cost of designing and setting up your Web site as well, although expensive Web sites may have to be depreciated over three years.
Category this deduction falls into: Advertising
--------------------------------------------------------------------------------
Hidden Tax Tips for Entrepreneurs
Twenty-five tax deductions you may not have heard of—but should
By John Tozzi
Are you missing tax deductions you're entitled to? Small business owners, self-employed workers, and independent contractors can write off many legitimate business expenses immediately, reducing the amount of income on which they pay taxes. But if you overlook applicable deductions or fail to keep adequate records that will back up your write-offs during an audit, you give up opportunities to cut your tax bill.
The Schedule C tax form used by sole proprietors to report business profit or loss has 21 line items for business expenses—including such catch-all categories as "office expense," "supplies," and "other expenses." The tax forms for partnerships, LLCs, and S-corps are similarly broad. "It doesn't even begin to hint at all the things that a business can legitimately deduct," says Bernard Kamoroff, a certified public accountant and author of 422 Tax Deductions for Businesses & Self Employed Individuals. Don't expect your accountant to find all the deductions you qualify for—your accountant doesn't know your spending as intimately as you do.
Kamoroff says business owners can reduce their tax bills by deducting expenditures that the Internal Revenue Service doesn't explicitly outline, but are nonetheless legitimate business expenses. In general, a purchase must be "ordinary and necessary" in your trade to be deductible. Few of the often-overlooked write-offs on their own will cut your tax bill substantially, but in aggregate, they can be worth the time and effort to track and deduct them. "They're all nickel dime, but boy they can add up," Kamoroff says.
Vehicle Deductions Often Overlooked
There are a few big deductions that can significantly reduce your tax bill if you qualify. New investments of up to $250,000 in equipment, vehicles, or software can be written off immediately, rather than depreciated over future years, under the Section 179 deduction. If you have a home office that you use exclusively as your primary place of business, you can deduct costs for the business use of your home. And if you use your car or truck for business, you can deduct work-related expenses for gas, maintenance, insurance, and other costs, either using the IRS's standard mileage rate or by calculating the actual costs. The home office and vehicle deductions are two of the most overlooked write-offs, according to the National Association for the Self-Employed.
Small business owners who travel for business may also deduct some of their travel costs. Business-related meals and entertainment are only 50% deductible, although you can't write off expenses that are considered "lavish and extravagant." If your trip is exclusively for business, lodging and transportation costs are fully deductible. If the trip mixes business and personal matters, you may still be able to write off some business-related expenses.
Aside from big write-offs like travel or home-office deductions, plenty of other expenditures can save you money on taxes. If more than half your cell phone use is for business, you can deduct the cost of the business-related calls. Write off your Web hosting and domain name charges. And deduct the cost of business-related books, magazines, and newspaper subscriptions.
Meticulous Records a Must
The key to taking these small deductions is keeping track of your expenditures, so that you can show an auditor that your write-offs are truly business-related. "It is very important that they keep meticulous records, because the IRS is going to be pretty aggressive," says Chas Roy-Chowdhury, head of taxation for the Association of Chartered Certified Accountants. But business owners who take legitimate deductions, and have the receipts, invoices, or other records to back them up, can maximize their tax savings.
Tax Deductions You've Never Heard Of
Are you leaving tax savings on the table? Plenty of legitimate business expenses aren't spelled out by the Internal Revenue Service. It's up to you to find them—and keep records that will show they're reasonable if you get audited. Most "ordinary and necessary" business expenses can be deducted, says Bernard Kamoroff, a CPA and author of "422 Tax Deductions for Businesses & Self-Employed Individuals." Here are 25 write-offs Kamoroff identifies that you may qualify for without even knowing. When in doubt, check with your accountant to see if these apply to you.
ATM Fees, Credit-Card Fees, and Interest
You can deduct ATM fees, credit-card fees, and other bank charges incurred on your business accounts.
Category this deduction falls into: Office expenses; interest
Books, Magazines, and Newspapers
Business-related books and subscriptions to magazines, newspapers, and trade publications are deductible.
Category this deduction falls into: Office expenses
Business Cards
Deduct the cost of business cards for yourself and your employees.
Category this deduction falls into: Office expenses
Cell PhonesIf more than half of your cell-phone use is for business, you can deduct that proportion of the cost, up to the full amount if you have a dedicated cell phone for your company. But if you use your cell phone for business less than half the time, you can't deduct it.
Category this deduction falls into: Office expenses
Child Care
If you offer employees child care, you can deduct the cost. You can offer employees up to $5,000 a year in dependent-care benefits that are excluded from their wages, tax-free to them and deductible for you. Employees may qualify for other dependent-care tax credits. For more, check the IRS guidelines.
Category this deduction falls into: Employee benefit programs
Cleaning Service
The cost of a cleaner or janitor to maintain your place of work is deductible.
Category this deduction falls into: Office expense
Coffee and Snacks
Write off what you pay to keep yourself and your staff caffeinated. Other small office snacks are deductible, but meals for yourself are not, and the cost of meals provided to employees can only be deducted if there's a business reason for having them eat at work.
Category this deduction falls into: Office expenses
Company Parties
Deduct the entire cost of a party where all employees are invited. Other business parties or events that are thrown to promote the business are considered entertainment, and are therefore 50% deductible.
Category this deduction falls into: Office expense, entertainment.
Disabled Access
Small businesses can get credits and deductions for the cost of making their place of business accessible to people with disabilities. For more information, see the IRS guide.
Domestic Production
Even nonmanufacturers may qualify for a break called the Domestic Production Activities Deduction. Firms including architects, engineers, software makers, and film producers all may be eligible for this deduction, which is equal to 6% of net income from domestic production activities. It maxes out at 50% of W-2 wages, however, so non-employer firms don't qualify. For more, see the IRS instructions.
Dues
Deduct membership fees in trade organizations, professional groups, and chambers of commerce. Portions of dues that are for political lobbying are not deductible, and dues for political clubs or recreational groups aren't business expenses and can't be deducted.
Category this deduction falls into: Other expenses
Garbage Pickup
If you pay to have your trash hauled, you can deduct the cost. Some manufacturers may have to add this to the cost of inventory.
Category this deduction falls into: Utilities
Greeting CardsGreeting cards to clients and prospects count as tax-deductible expenses.
Category this deduction falls into: Office expenses
Internet Access
You can deduct the cost of your Internet access, but if you use the connection for both business and personal purposes, you can only deduct the amount used for business.
Category this deduction falls into: Office expenses
Lists
If you buy or rent lists of e-mail addresses, mailing addresses, or phone numbers, you can write off the cost.
Category this deduction falls into: Advertising
Parking and Tolls
Business-related parking costs beyond what you pay to park at your regular place of work are deductible, as are tolls paid during business travel. Parking violations and other tickets are not.
Category this deduction falls into: Car and truck expenses
Postage and Mailing
Stamps, other mailing costs, and the cost of renting post-office boxes are deductible.
Category this deduction falls into: Office expenses
Research and Development
You can deduct the cost of developing new products or improving existing ones. For more on this, see this IRS article on R&D deductions.
Category this deduction falls into: Other expenses
Retirement Plans
Contributions to tax-deferred retirement plans such as IRAs or Self-Employed Pensions can reduce your tax bill, because that income won't be taxed until you withdraw it from the account. You can count contributions to these plans made through Apr. 15, 2009 for the 2008 tax year. You can also deduct contributions made to employee retirement plans. For more information, see the IRS instructio
Seminars, Classes, and Training
Education that improves your knowledge and skills in your current business is deductible, but training for an unrelated trade is not. Employers can fully deduct the cost of job-related education for their workers. Employers who pay for nonjob-related education for workers can write off up to $5,250 as part of a formal educational assistance program.
Category this deduction falls into: Other expenses, employee benefit programs
Shipping
If you pay for customers' shipping and handling on the goods you sell, you can deduct those costs.
Category this deduction falls into: Other expenses.
Software
The cost of software can be depreciated over three years or deducted immediately under the Section 179 expensing, which lets you write off up to $250,000 in capital expendiutures.
Category this deduction falls into: Office expenses or depreciation.
Tax Preparation
You can deduct what you pay a tax preparer for the business portion of your taxes.
Category this deduction falls into: Legal and professional services
Trade Shows
Write off the entrance fees for trade shows, conferences, and other industry meetings. Travel costs and meal expenses may be deductible under the rules for business travel.
Category this deduction falls into: Other expenses
Web site
Deduct your hosting fees and the cost of your domain name. You can generally deduct the cost of designing and setting up your Web site as well, although expensive Web sites may have to be depreciated over three years.
Category this deduction falls into: Advertising
--------------------------------------------------------------------------------
Moody's List Companies at Risk of Default (WSJ )
March 9, 2009
The 'Bottom Rung' -- Companies at Greatest Risk of Defaulting
Moody's Investors Service is launching a list called the "Bottom Rung," which details 283 companies that are at risk of defaulting on their debt. Below are the 30 largest companies on the list, based on rated debt.
Allison Transmission, Inc. B3 B3 Negative 4.60 Automotive: Parts
AMR Corp. Caa1 Caa1 Negative 1.62 Transportation Services: Airline
Building Materials Corporation of America Caa1 B3 Negative 1.55 Manufacturing: Finished Products
Chrysler LLC Ca Ca Negative 9.00 Automotive: Passenger
Citadel Broadcasting Corp. Caa3 Caa2 Negative 2.29 Media: Broadcast Tv & Radio Stations
Claire's Stores, Inc. Caa3 Caa3 Negative 2.59 Retail: Department Stores
Dana Holding Corp. Caa1 Caa1 Rating under reveiw 2.08 Automotive: Parts
Dole Food Company, Inc. Caa1 B3 Negative 1.51 Natural Products Processor: Agriculture
Eastman Kodak Co. B3 B3 Negative 2.10 Technology: Hardware
Ford Motor Co. Caa3 Caa3 Negative 31.55 Automotive: Passenger
Freescale Semiconductor, Inc. Ca Caa1 Negative 10.20 Technology: Semiconductor
General Motors Corp. Ca Ca Negative 38.56 Automotive: Passenger
Georgia Gulf Corp. Caa2 Caa2 Negative 1.98 Chemicals: Commodity Chemical
Hawker Beechcraft Acquisition Co. B3 B3 Negative 2.85 Aircraft & Aerospace: Equipment
Idearc, Inc. Caa3 Caa2 Negative 9.29 Media Publishing: Books
Lear Corp. Caa2 Caa2 Rating under reveiw 2.30 Automotive: Parts
Level 3 Communications, Inc. Caa1 Caa1 Rating under reveiw 1.87 Telecommunications: Wireline
Michaels Stores, Inc. B3 B3 Negative 3.93 Retail: Specialty
OSI Restaurant Partners, Inc. Ca Caa1 Rating under reveiw 2.11 Restaurants: Family Dining
R.H. Donnelley Corp. Caa2 Caa1 Negative 3.48 Media: Printing - Holdco
Reader's Digest Association, Inc. Caa3 Caa3 Negative 2.21 Media Publishing: Newspapers & Magazines
Realogy Corp. Caa3 Caa3 Negative 7.56 Services: Consumer
Rite Aid Corp. Caa2 Caa2 Negative 6.80 Retail: Drug Stores
Source Interlink Companies Inc. Caa1 Caa1 Negative 1.63 Media Publishing: Newspapers & Magazines
Swift Transportation Co., Inc. Caa1 Caa1 Negative 2.98 Transportation Services: Trucking
Tenneco Inc. B3 B3 Negative 1.83 Automotive: Parts
Univision Communications, Inc. B3 B3 Negative 10.09 Media: Diversified Media - Fc
US Airways Group, Inc. Caa1 Caa1 Negative 1.60 Transportation Services: Airline
Visteon Corp. Caa1 Caa2 Negative 3.20 Automotive: Parts
Western Refining, Inc. B3 B3 Negative 1.40 Energy: Oil - Refining & Marketing
Sources: Moody's Investors Service
The 'Bottom Rung' -- Companies at Greatest Risk of Defaulting
Moody's Investors Service is launching a list called the "Bottom Rung," which details 283 companies that are at risk of defaulting on their debt. Below are the 30 largest companies on the list, based on rated debt.
Allison Transmission, Inc. B3 B3 Negative 4.60 Automotive: Parts
AMR Corp. Caa1 Caa1 Negative 1.62 Transportation Services: Airline
Building Materials Corporation of America Caa1 B3 Negative 1.55 Manufacturing: Finished Products
Chrysler LLC Ca Ca Negative 9.00 Automotive: Passenger
Citadel Broadcasting Corp. Caa3 Caa2 Negative 2.29 Media: Broadcast Tv & Radio Stations
Claire's Stores, Inc. Caa3 Caa3 Negative 2.59 Retail: Department Stores
Dana Holding Corp. Caa1 Caa1 Rating under reveiw 2.08 Automotive: Parts
Dole Food Company, Inc. Caa1 B3 Negative 1.51 Natural Products Processor: Agriculture
Eastman Kodak Co. B3 B3 Negative 2.10 Technology: Hardware
Ford Motor Co. Caa3 Caa3 Negative 31.55 Automotive: Passenger
Freescale Semiconductor, Inc. Ca Caa1 Negative 10.20 Technology: Semiconductor
General Motors Corp. Ca Ca Negative 38.56 Automotive: Passenger
Georgia Gulf Corp. Caa2 Caa2 Negative 1.98 Chemicals: Commodity Chemical
Hawker Beechcraft Acquisition Co. B3 B3 Negative 2.85 Aircraft & Aerospace: Equipment
Idearc, Inc. Caa3 Caa2 Negative 9.29 Media Publishing: Books
Lear Corp. Caa2 Caa2 Rating under reveiw 2.30 Automotive: Parts
Level 3 Communications, Inc. Caa1 Caa1 Rating under reveiw 1.87 Telecommunications: Wireline
Michaels Stores, Inc. B3 B3 Negative 3.93 Retail: Specialty
OSI Restaurant Partners, Inc. Ca Caa1 Rating under reveiw 2.11 Restaurants: Family Dining
R.H. Donnelley Corp. Caa2 Caa1 Negative 3.48 Media: Printing - Holdco
Reader's Digest Association, Inc. Caa3 Caa3 Negative 2.21 Media Publishing: Newspapers & Magazines
Realogy Corp. Caa3 Caa3 Negative 7.56 Services: Consumer
Rite Aid Corp. Caa2 Caa2 Negative 6.80 Retail: Drug Stores
Source Interlink Companies Inc. Caa1 Caa1 Negative 1.63 Media Publishing: Newspapers & Magazines
Swift Transportation Co., Inc. Caa1 Caa1 Negative 2.98 Transportation Services: Trucking
Tenneco Inc. B3 B3 Negative 1.83 Automotive: Parts
Univision Communications, Inc. B3 B3 Negative 10.09 Media: Diversified Media - Fc
US Airways Group, Inc. Caa1 Caa1 Negative 1.60 Transportation Services: Airline
Visteon Corp. Caa1 Caa2 Negative 3.20 Automotive: Parts
Western Refining, Inc. B3 B3 Negative 1.40 Energy: Oil - Refining & Marketing
Sources: Moody's Investors Service
List of Leveraged ETFS (FROM YORK INVESTMENTS)
Leveraged ETFs
March 9, 2009 by York
Commodities Agriculture
2x Leverage Long - DB Agriculture Double Long ETN (DAG)
3x Leverage Long - None
2x Leverage Short - None
3x Leverage Short - None
Commodities Diversified
2x Leverage Long - DB Commodity Double Long ETN (DYY), Proshares Ultra Commodity (UCD)
3x Leverage Long - None
2x Leverage Short - DB Commodity Double Short ETN (DEE), Proshares Ultrashort Commodity (CMD)
3x Leverage Short - None
Gold
2x Leverage Long - DB Gold Double Long ETN (DGP), Proshares Ultra Gold (UGL)
3x Leverage Long - None
2x Leverage Short - DB Gold Double Short ETN (DZZ), Proshares Ultrashort Gold (GLL)
3x Leverage Short - None
Silver
2x Leverage Long - Proshares Ultra Silver (AGQ)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Silver (ZSL)
3x Leverage Short - None
International Developed Diversified
2x Leverage Long - None
3x Leverage Long - Direxion Developed Markets Bull 3x (DZK)
2x Leverage Short - Proshares Ultrashort MSCI EAFE (EFU)
3x Leverage Short - Direxion Developed Market Bear 3x (DPK)
International Emerging Diversified
2x Leverage Long - None
3x Leverage Long - Direxion Emerging Markets Bull 3x (EDC)
2x Leverage Short - Proshares UltrashortMSCI Emerging (EEV)
3x Leverage Short - Direxion Emerging Market Bear 3x (EDZ)
Energy
2x Leverage Long - Proshares Ultra Oil and Gas (DIG), Rydex 2x Energy (REA)
3x Leverage Long - Direxion Energy Bull 3x (ERX)
2x Leverage Short - Proshares Ultrashort Oil and Gas (DUG), Rydex Inverse 2x Energy (REC)
3x Leverage Short - Direxion Energy Bear 3x (ERY)
Financials
2x Leverage Long - Proshares Ultra Financials (UYG), Rydex 2x Financials (RFL)
3x Leverage Long - Direxion Financial Bull 3x (FAS)
2x Leverage Short - Proshares Ultrashort Financials (SKF), Rydex Inverse 2x Financials (RFN)
3x Leverage Short - Direxion Financial Bear 3x (FAZ)
Domestic Large Cap
2x Leverage Long - Proshares Ultra Dow 30 (DDM), Proshares Ultra QQQ (QLD), Proshares Ultra Russell 1000 Growth (UKF), Proshares Ultra Russell 1000 Value (UVG), Proshares Ultra S&P 500 (SSO), Rydex 2x S&P 500 (RSU)
3x Leverage Long - Direxion Large Cap Bull 3x (BGU)
2x Leverage Short - Proshares Ultrashort Dow 30 (DXD), Proshares Ultrashort QQQ (QID), Proshares Ultrashort Russell 1000 Growth (SFK), Proshares Ultrashort Russell 1000 Value (SJF), Proshares Ultrashort S&P 500 (SDS), Rydex Inverse 2x S&P 500 (RSW)
3x Leverage Short - Direxion Large Cap Bear 3x (BGZ)
Domestic Mid Cap
2x Leverage Long - Proshares Ultra Midcap 400 (MVV), Proshares Ultra Russell Midcap Growth (UKW), Proshares Ultra Midcap Value (UVU), Rydex 2x S&P Midcap 400 (RMM)
3x Leverage Long - Direxion Mid Cap Bull 3x (MWJ)
2x Leverage Short - Proshares Ultrashort Midcap 400 (MZZ), Proshares Ultrashort Midcap Growth (SDK), Proshares Ultrashort Midcap Value (SJL), Rydex Inverse 2x Midcap400 (RMS)
3x Leverage Short - Direxion Mid Cap Bear 3x (MWN)
Domestic Small Cap
2x Leverage Long - Proshares Ultra Russell 2000 (UWM), Proshares Ultra Russell 2000 Growth (UKK), Proshares Ultra Russell 2000 Value (UVT), Proshares Ultra S&P Smallcap 600 (SAA), Rydex 2x Russell 2000 (RRY),
3x Leverage Long - Direxion Small Cap Bull 3x (TNA)
2x Leverage Short - Proshares Ultrashort Russell 2000 (TWM), Proshares Ultrashort Russell 2000 Growth (SKK), Proshares Ultrashort Russell 2000 Value (SJH), Proshares Ultrashort Smallcap 600 (SDD), Rydex Inverse 2x Russell 2000 (RRZ)
3x Leverage Short - Direxion Small Cap Bear 3x (TZA)
Technology
2x Leverage Long - Proshares Ultra Semiconductors (USD), Proshares Ultra Technology (ROM), Rydex 2x Technology (RTG)
3x Leverage Long - Direxion Technology Bull 3x (TYH)
2x Leverage Short - Proshares Ultrashort Semiconductors (SSG), Proshares Ultrashort Technology (REW), Rydex Inverse 2x Technology (RTW)
3x Leverage Short - Direxion Technology Bear 3x (TYP)
Euro
2x Leverage Long - Market Vectors Double Long Euro ETN (URR), Proshares Ultra EURO (ULE)
3x Leverage Long - None
2x Leverage Short - Market Vectors Double Short Euro ETN (DRR), Proshares Ultrashort EURO (EUO)
3x Leverage Short - None
Commodities Base Metals
2x Leverage Long - Powershares DB Base Metals Double Long ETN (BDD)
3x Leverage Long - None
2x Leverage Short - Powershares DB Base Metals Double Short ETN (BOM)
3x Leverage Short - None
Crude Oil
2x Leverage Long - Powershares DB Crude Oil Double Long ETN (DXO), Proshares Ultra Crude Oil (UCO)
3x Leverage Long - None
2x Leverage Short - Powershares DB Crude Oil Double Short ETN (DTO), Proshares Ultrashort Crude Oil (SCO)
3x Leverage Short - None
Basic Materials
2x Leverage Long - Proshares Ultra Basic Materials (UYM)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Basic Materials (SMN)
3x Leverage Short - None
Consumer Goods
2x Leverage Long - Proshares Ultra Consumer Goods (UGE)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Consumer Goods (SZK)
3x Leverage Short - None
Consumer Services
2x Leverage Long - Proshares Ultra Consumer Services (UCC)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Consumer Services (SCC)
3x Leverage Short - None
Healthcare
2x Leverage Long - Proshares Ultra Healthcare (RXL), Rydex 2x Healthcare (RHM)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Healthcare (RXD), Rydex Inverse 2x Healthcare (RHO)
3x Leverage Short - None
Industrials
2x Leverage Long - Proshares Ultra Industrials (UXI)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Industrials (SIJ)
3x Leverage Short - None
Real Estate
2x Leverage Long - Proshares Ultra Real Estate (URE)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Real Estate (SRS)
3x Leverage Short - None
Utilities
2x Leverage Long - Proshares Ultra Utilities (UPW)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Utilities (SDP)
3x Leverage Short - None
Telecommunications
2x Leverage Long - Proshares Ultra Telecommunications (LTL)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Telecommunications (TLL)
3x Leverage Short - None
Yen
2x Leverage Long - Proshares Ultra Yen (YCL)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Yen (YCS)
3x Leverage Short - None
China
2x Leverage Long - None
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort China (FXP)
3x Leverage Short - None
Treasuries
2x Leverage Long - None
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Lehman 20+ (TBT), Proshares Ultrashort Lehman 7-10 (PST)
3x Leverage Short - None
Japan
2x Leverage Long - None
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Japan (EWV)
3x Leverage Short - None
March 9, 2009 by York
Commodities Agriculture
2x Leverage Long - DB Agriculture Double Long ETN (DAG)
3x Leverage Long - None
2x Leverage Short - None
3x Leverage Short - None
Commodities Diversified
2x Leverage Long - DB Commodity Double Long ETN (DYY), Proshares Ultra Commodity (UCD)
3x Leverage Long - None
2x Leverage Short - DB Commodity Double Short ETN (DEE), Proshares Ultrashort Commodity (CMD)
3x Leverage Short - None
Gold
2x Leverage Long - DB Gold Double Long ETN (DGP), Proshares Ultra Gold (UGL)
3x Leverage Long - None
2x Leverage Short - DB Gold Double Short ETN (DZZ), Proshares Ultrashort Gold (GLL)
3x Leverage Short - None
Silver
2x Leverage Long - Proshares Ultra Silver (AGQ)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Silver (ZSL)
3x Leverage Short - None
International Developed Diversified
2x Leverage Long - None
3x Leverage Long - Direxion Developed Markets Bull 3x (DZK)
2x Leverage Short - Proshares Ultrashort MSCI EAFE (EFU)
3x Leverage Short - Direxion Developed Market Bear 3x (DPK)
International Emerging Diversified
2x Leverage Long - None
3x Leverage Long - Direxion Emerging Markets Bull 3x (EDC)
2x Leverage Short - Proshares UltrashortMSCI Emerging (EEV)
3x Leverage Short - Direxion Emerging Market Bear 3x (EDZ)
Energy
2x Leverage Long - Proshares Ultra Oil and Gas (DIG), Rydex 2x Energy (REA)
3x Leverage Long - Direxion Energy Bull 3x (ERX)
2x Leverage Short - Proshares Ultrashort Oil and Gas (DUG), Rydex Inverse 2x Energy (REC)
3x Leverage Short - Direxion Energy Bear 3x (ERY)
Financials
2x Leverage Long - Proshares Ultra Financials (UYG), Rydex 2x Financials (RFL)
3x Leverage Long - Direxion Financial Bull 3x (FAS)
2x Leverage Short - Proshares Ultrashort Financials (SKF), Rydex Inverse 2x Financials (RFN)
3x Leverage Short - Direxion Financial Bear 3x (FAZ)
Domestic Large Cap
2x Leverage Long - Proshares Ultra Dow 30 (DDM), Proshares Ultra QQQ (QLD), Proshares Ultra Russell 1000 Growth (UKF), Proshares Ultra Russell 1000 Value (UVG), Proshares Ultra S&P 500 (SSO), Rydex 2x S&P 500 (RSU)
3x Leverage Long - Direxion Large Cap Bull 3x (BGU)
2x Leverage Short - Proshares Ultrashort Dow 30 (DXD), Proshares Ultrashort QQQ (QID), Proshares Ultrashort Russell 1000 Growth (SFK), Proshares Ultrashort Russell 1000 Value (SJF), Proshares Ultrashort S&P 500 (SDS), Rydex Inverse 2x S&P 500 (RSW)
3x Leverage Short - Direxion Large Cap Bear 3x (BGZ)
Domestic Mid Cap
2x Leverage Long - Proshares Ultra Midcap 400 (MVV), Proshares Ultra Russell Midcap Growth (UKW), Proshares Ultra Midcap Value (UVU), Rydex 2x S&P Midcap 400 (RMM)
3x Leverage Long - Direxion Mid Cap Bull 3x (MWJ)
2x Leverage Short - Proshares Ultrashort Midcap 400 (MZZ), Proshares Ultrashort Midcap Growth (SDK), Proshares Ultrashort Midcap Value (SJL), Rydex Inverse 2x Midcap400 (RMS)
3x Leverage Short - Direxion Mid Cap Bear 3x (MWN)
Domestic Small Cap
2x Leverage Long - Proshares Ultra Russell 2000 (UWM), Proshares Ultra Russell 2000 Growth (UKK), Proshares Ultra Russell 2000 Value (UVT), Proshares Ultra S&P Smallcap 600 (SAA), Rydex 2x Russell 2000 (RRY),
3x Leverage Long - Direxion Small Cap Bull 3x (TNA)
2x Leverage Short - Proshares Ultrashort Russell 2000 (TWM), Proshares Ultrashort Russell 2000 Growth (SKK), Proshares Ultrashort Russell 2000 Value (SJH), Proshares Ultrashort Smallcap 600 (SDD), Rydex Inverse 2x Russell 2000 (RRZ)
3x Leverage Short - Direxion Small Cap Bear 3x (TZA)
Technology
2x Leverage Long - Proshares Ultra Semiconductors (USD), Proshares Ultra Technology (ROM), Rydex 2x Technology (RTG)
3x Leverage Long - Direxion Technology Bull 3x (TYH)
2x Leverage Short - Proshares Ultrashort Semiconductors (SSG), Proshares Ultrashort Technology (REW), Rydex Inverse 2x Technology (RTW)
3x Leverage Short - Direxion Technology Bear 3x (TYP)
Euro
2x Leverage Long - Market Vectors Double Long Euro ETN (URR), Proshares Ultra EURO (ULE)
3x Leverage Long - None
2x Leverage Short - Market Vectors Double Short Euro ETN (DRR), Proshares Ultrashort EURO (EUO)
3x Leverage Short - None
Commodities Base Metals
2x Leverage Long - Powershares DB Base Metals Double Long ETN (BDD)
3x Leverage Long - None
2x Leverage Short - Powershares DB Base Metals Double Short ETN (BOM)
3x Leverage Short - None
Crude Oil
2x Leverage Long - Powershares DB Crude Oil Double Long ETN (DXO), Proshares Ultra Crude Oil (UCO)
3x Leverage Long - None
2x Leverage Short - Powershares DB Crude Oil Double Short ETN (DTO), Proshares Ultrashort Crude Oil (SCO)
3x Leverage Short - None
Basic Materials
2x Leverage Long - Proshares Ultra Basic Materials (UYM)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Basic Materials (SMN)
3x Leverage Short - None
Consumer Goods
2x Leverage Long - Proshares Ultra Consumer Goods (UGE)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Consumer Goods (SZK)
3x Leverage Short - None
Consumer Services
2x Leverage Long - Proshares Ultra Consumer Services (UCC)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Consumer Services (SCC)
3x Leverage Short - None
Healthcare
2x Leverage Long - Proshares Ultra Healthcare (RXL), Rydex 2x Healthcare (RHM)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Healthcare (RXD), Rydex Inverse 2x Healthcare (RHO)
3x Leverage Short - None
Industrials
2x Leverage Long - Proshares Ultra Industrials (UXI)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Industrials (SIJ)
3x Leverage Short - None
Real Estate
2x Leverage Long - Proshares Ultra Real Estate (URE)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Real Estate (SRS)
3x Leverage Short - None
Utilities
2x Leverage Long - Proshares Ultra Utilities (UPW)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Utilities (SDP)
3x Leverage Short - None
Telecommunications
2x Leverage Long - Proshares Ultra Telecommunications (LTL)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Telecommunications (TLL)
3x Leverage Short - None
Yen
2x Leverage Long - Proshares Ultra Yen (YCL)
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Yen (YCS)
3x Leverage Short - None
China
2x Leverage Long - None
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort China (FXP)
3x Leverage Short - None
Treasuries
2x Leverage Long - None
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Lehman 20+ (TBT), Proshares Ultrashort Lehman 7-10 (PST)
3x Leverage Short - None
Japan
2x Leverage Long - None
3x Leverage Long - None
2x Leverage Short - Proshares Ultrashort Japan (EWV)
3x Leverage Short - None
Steps You Can Take in A Market Decline (WSJ)
THE INTELLIGENT INVESTOR MARCH 4, 2009
Tempest-Tossed? Take Some Control
By JASON ZWEIG
In normal times, the best advice after a market decline is "Don't be afraid." But these are not normal times, and anyone who is not afraid after a 50% market decline has a few screws loose. The trick is to channel your fear into sensible action that will improve your financial future.
Instead of big impulsive steps you may regret later, you should take small and careful steps that will make you feel you have taken charge. Mental-health experts have found that merely believing you have some control over a painful situation is enough to make the pain more bearable. At a time like this, taking a little bit of action can give you a lot of comfort -- both as an immediate salve for your market wounds today and as a portfolio strengthener in the years to come.
For investors, that means being deliberate in everything you do and making sure that all your decisions are gradual and incremental, rather than sudden and drastic. Call it "smart panic" -- calculated actions that free you from the chains of inertia without compelling you to go haywire.
Normally, inertia keeps investors locked into all their investments, good and bad. As Sir Isaac Newton might have put it, an investor at rest stays at rest, and an investor in motion stays in motion, unless acted upon by an outside force. Severe losses can shock any investor out of inertia, often in destructive ways.
Here is a list of constructive steps you can take instead:
Inventory all your assets. The stock market has lost half its value -- but chances are that when you properly measure the performance of all your investments, you will see that your portfolio as a whole is down considerably less. Use an Excel or Google spreadsheet, even just pencil and paper, to tally up all your cash, bonds, stocks, funds and other investments. Only by taking inventory of everything you own can you tell how well or poorly your wealth has held up. In the process, you will also see -- perhaps for the first time -- how well you are diversified. This advice may seem simplistic, but over the years I have met very prominent investors who actually have no idea what they own. If they could benefit from this step, so can you.
Get an upgrade. By erasing your capital gains, the bear market has taken away much of the tax liability that might have entrapped you in an overpriced mutual fund with an underperforming manager. Now you can ditch it and replace it with what you should have held all along: a low-cost index fund (or if you do not invest regularly each month, an exchange-traded fund). Steve Condon, investment director at Truepoint Inc., a wealth-advisory firm in Cincinnati, points out that this will not only lower your annual expenses and your tax bill, but is likely to raise your return when the stock market does recover. That's because the managers of active stock funds have raised their cash levels to an average of nearly 6% of assets, while index funds always keep all their assets in the market.
Change your new money, not your old money. In your 401(k), you could leave your existing positions in stock funds as they are. Bailing out completely is not the only option for reducing your exposure to stocks. You can take your new contributions from future paychecks and direct them into an investment-grade bond fund. You can always reverse this decision later; to make sure you remember, mark your calendar to review the choice one year from now.
Move your dividends. If you own a stock fund, you aren't obligated to reinvest your dividend distributions in more shares of the same fund. Instead, you can deposit them into a bond or money-market fund. That, says finance professor Meir Statman of Santa Clara University, may be less psychologically painful than having to dump the stock fund in its entirety. "You're turning the dividends into 'fresh money' that doesn't have the taint of loss," he says.
Move on tiptoe. If you can't take the pain of being in stocks anymore, then get out -- an inch at a time. Set up an automatic withdrawal plan with your mutual fund or brokerage account, selling a fixed dollar amount each month for, say, the next five years. Take comfort from the fact that you can stop it, decrease it or raise it at any time. Tiptoeing your way out is a move that's easy and cheap to change. Bailing out of the market in one fell swoop, however, is a step that's difficult and expensive to reverse. Besides the commissions you can face, there's a high psychological cost to the regret you may later incur from any impetuous action.
Sell stocks to erase debts. If you do move money out of the stock market, think first about what you should do with the proceeds. One of the smartest possible uses for the money: getting rid of your credit-card debt. With the interest rates on credit-card balances averaging 10% to 13%, this move gives you what New York City financial planner Gary Schatsky calls "an exceptionally high, guaranteed rate of return." According to the Federal Reserve Board, the median credit-card balance, among families that carry one, is $3,000. The median holding in stocks and mutual funds, on the other hand, was $73,000 in 2007. Let's assume that the value of those investments has since fallen by half, to $37,000. Then selling just 10% of their portfolio of stocks and funds would not only make many families feel better; it could get them out of credit-card debt. (With today's low mortgage rates, credit cards are the liability to attack first.)
Smarten up your cash. Designate the cash part of your portfolio as the "risk-free bucket." That way, you can know that at least one portion of your money will be absolutely safe. Allan Roth, a financial planner with WealthLogic LLC in Colorado Springs, Colo., points out that with inflation approaching zero, five-year certificates of deposits yielding up to 4.5% offer "a very high real return." (You can start your search for them at bankdeals.blogspot.com.) Make sure that the bank or credit union offering the CD is backed by the Federal Deposit Insurance Corp. or the National Credit Union Administration; double-check at www.fdic.gov or www.ncua.gov. Many investors don't realize that the FDIC and NCUA will insure an IRA separately for up to $250,000 if it is invested in a deposit account like a CD. Putting a high-yielding CD in a retirement vehicle is tax-smart, to boot.
Email: intelligentinvestor@wsj.com
Printed in The Wall Street Journal, page D1
Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law.
Tempest-Tossed? Take Some Control
By JASON ZWEIG
In normal times, the best advice after a market decline is "Don't be afraid." But these are not normal times, and anyone who is not afraid after a 50% market decline has a few screws loose. The trick is to channel your fear into sensible action that will improve your financial future.
Instead of big impulsive steps you may regret later, you should take small and careful steps that will make you feel you have taken charge. Mental-health experts have found that merely believing you have some control over a painful situation is enough to make the pain more bearable. At a time like this, taking a little bit of action can give you a lot of comfort -- both as an immediate salve for your market wounds today and as a portfolio strengthener in the years to come.
For investors, that means being deliberate in everything you do and making sure that all your decisions are gradual and incremental, rather than sudden and drastic. Call it "smart panic" -- calculated actions that free you from the chains of inertia without compelling you to go haywire.
Normally, inertia keeps investors locked into all their investments, good and bad. As Sir Isaac Newton might have put it, an investor at rest stays at rest, and an investor in motion stays in motion, unless acted upon by an outside force. Severe losses can shock any investor out of inertia, often in destructive ways.
Here is a list of constructive steps you can take instead:
Inventory all your assets. The stock market has lost half its value -- but chances are that when you properly measure the performance of all your investments, you will see that your portfolio as a whole is down considerably less. Use an Excel or Google spreadsheet, even just pencil and paper, to tally up all your cash, bonds, stocks, funds and other investments. Only by taking inventory of everything you own can you tell how well or poorly your wealth has held up. In the process, you will also see -- perhaps for the first time -- how well you are diversified. This advice may seem simplistic, but over the years I have met very prominent investors who actually have no idea what they own. If they could benefit from this step, so can you.
Get an upgrade. By erasing your capital gains, the bear market has taken away much of the tax liability that might have entrapped you in an overpriced mutual fund with an underperforming manager. Now you can ditch it and replace it with what you should have held all along: a low-cost index fund (or if you do not invest regularly each month, an exchange-traded fund). Steve Condon, investment director at Truepoint Inc., a wealth-advisory firm in Cincinnati, points out that this will not only lower your annual expenses and your tax bill, but is likely to raise your return when the stock market does recover. That's because the managers of active stock funds have raised their cash levels to an average of nearly 6% of assets, while index funds always keep all their assets in the market.
Change your new money, not your old money. In your 401(k), you could leave your existing positions in stock funds as they are. Bailing out completely is not the only option for reducing your exposure to stocks. You can take your new contributions from future paychecks and direct them into an investment-grade bond fund. You can always reverse this decision later; to make sure you remember, mark your calendar to review the choice one year from now.
Move your dividends. If you own a stock fund, you aren't obligated to reinvest your dividend distributions in more shares of the same fund. Instead, you can deposit them into a bond or money-market fund. That, says finance professor Meir Statman of Santa Clara University, may be less psychologically painful than having to dump the stock fund in its entirety. "You're turning the dividends into 'fresh money' that doesn't have the taint of loss," he says.
Move on tiptoe. If you can't take the pain of being in stocks anymore, then get out -- an inch at a time. Set up an automatic withdrawal plan with your mutual fund or brokerage account, selling a fixed dollar amount each month for, say, the next five years. Take comfort from the fact that you can stop it, decrease it or raise it at any time. Tiptoeing your way out is a move that's easy and cheap to change. Bailing out of the market in one fell swoop, however, is a step that's difficult and expensive to reverse. Besides the commissions you can face, there's a high psychological cost to the regret you may later incur from any impetuous action.
Sell stocks to erase debts. If you do move money out of the stock market, think first about what you should do with the proceeds. One of the smartest possible uses for the money: getting rid of your credit-card debt. With the interest rates on credit-card balances averaging 10% to 13%, this move gives you what New York City financial planner Gary Schatsky calls "an exceptionally high, guaranteed rate of return." According to the Federal Reserve Board, the median credit-card balance, among families that carry one, is $3,000. The median holding in stocks and mutual funds, on the other hand, was $73,000 in 2007. Let's assume that the value of those investments has since fallen by half, to $37,000. Then selling just 10% of their portfolio of stocks and funds would not only make many families feel better; it could get them out of credit-card debt. (With today's low mortgage rates, credit cards are the liability to attack first.)
Smarten up your cash. Designate the cash part of your portfolio as the "risk-free bucket." That way, you can know that at least one portion of your money will be absolutely safe. Allan Roth, a financial planner with WealthLogic LLC in Colorado Springs, Colo., points out that with inflation approaching zero, five-year certificates of deposits yielding up to 4.5% offer "a very high real return." (You can start your search for them at bankdeals.blogspot.com.) Make sure that the bank or credit union offering the CD is backed by the Federal Deposit Insurance Corp. or the National Credit Union Administration; double-check at www.fdic.gov or www.ncua.gov. Many investors don't realize that the FDIC and NCUA will insure an IRA separately for up to $250,000 if it is invested in a deposit account like a CD. Putting a high-yielding CD in a retirement vehicle is tax-smart, to boot.
Email: intelligentinvestor@wsj.com
Printed in The Wall Street Journal, page D1
Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law.
Reverse ETFs not a long term vehicle (WSJ)
Friday, February 27, 2009 As of 9:37 PM EST
THE INTELLIGENT INVESTOR FEBRUARY 27, 2009, 9:37 P.M. ET How Managing Risk With ETFs Can Backfire
By JASON ZWEIG
Article
Comments (14)
Alcohol ads urge us to "drink responsibly." Cigarette packs are emblazoned with the surgeon general's warnings about cancer. And the firms that sell leveraged exchange-traded funds keep begging individual investors not to buy the things because they are meant only for short-term trading and can have erratic long-term returns.
Nonetheless, roughly 13,000 people are killed in alcohol-related crashes each year, over 33 million Americans smoke at least once a day -- and more than $2 billion has poured into leveraged ETFs so far this year, much of it from financial advisers and retail investors who hang on too long.
ETFs are funds that trade during the day like stocks. A leveraged ETF seeks to use futures and other derivatives to multiply the daily return of a market index. Some, called "ultra," "2X" or "3X bull," attempt to double or triple the market's return each day. Others try to double or triple the opposite of an index's return; on a day when the market goes down, these "ultra-short," "inverse 2X" or "3X bear" funds should go up two or three times as much.
On Thursday, the Standard & Poor's 500-stock index dropped 1.6%. ProShares UltraShort S&P500, which tries to deliver twice the inverse of the index's daily return, went up 3.2% -- right on target.
So why bother with a boring index fund when you could double or triple your money by using a leveraged ETF? And why helplessly watch your stocks wither away when an inverse leveraged fund could let you mint money in a falling market?
There are 106 such funds with $46 billion in assets, much of it "hot money" that flies right back out. On Wednesday, trading volume for Direxion Financial Bear 3X totaled 23.1 million shares on only two million shares outstanding -- implying an average holding period of less than 34 minutes.
Leveraged ETFs are perfectly suited to such itchy-fingered traders, who can obsessively adjust their holdings to maintain a targeted level of exposure.
But even some "financial advisers," who run ordinary investors' money, hang onto leveraged ETFs the way a sharpshooter clings to a favorite rifle. And if you don't understand how these funds work, you could take a bullet yourself. Their returns are predictable relative to the index only if you own them for one day or less. Over longer periods, say a week or more, these funds can wander wildly away from the underlying index.
When a market is trending in the same direction, a leveraged ETF can race ahead as it adjusts its leverage to its rising assets, jacking up its exposure to the market's next move. Last Nov. 4 through Nov. 20, the Russell 1000 index of large stocks kept falling until it lost 25.6%. In response, Direxion Large Cap Bear 3X, an inverse fund, went up even more than its triple target; it rose 109.2%, four times as much as the Russell went down.
What happens when a market doesn't take a straight path? Let's say you were bearish on China and invested $10,000 in ProShares UltraShort FTSE/Xinhua China 25 on Oct. 9, 2008. Each day the Chinese market went down, this double-reverse fund went up twice as much. It also fell twice as much on any day when China rose.
These swings make it hard for a leveraged fund to match its targeted return in the long run; each loss requires a bigger gain just to get back to break-even. As the Chinese market heaved up and down over the next nine tumultuous trading days, $10,000 invested in Chinese stocks would have dropped to less than $9,200, a cumulative loss of 8%. Did the ultra-short fund deliver twice the opposite, or a 16% gain? No: According to data from Morningstar, it shriveled to $7,838, a 21.6% loss. So much for longer-term hedging.
Still, many financial advisers believe these funds are a good long-term hedge against falling markets. At a recent conference, roughly 50 financial advisers besieged Matthew Hougan, editor of IndexUniverse.com, a financial Web site, asking him to explain how leveraged ETFs work. Some "are starting to understand," says Mr. Hougan, "but there is still a huge contingent out there who don't."
Like an amen corner, the leveraged ETF firms all say they keep trying to scare off long-term investors. The funds "are not a buy-and-hold vehicle," warns Michael Sapir, chairman of ProShare Advisors. "These products are designed for trading use, not to be hedging tools," insists Carl Resnick, vice president at Rydex Investments. Holding a leveraged ETF for longer than a day, says Andy O'Rourke, marketing chief at Direxion Funds, is "like using a toaster to cook a turkey."
The bottom line: Leveraged ETFs are for day traders. You can't manage long-term risk with a short-term tool -- especially not with one that can blow up in your face.
Write to Jason Zweig at intelligentinvestor@wsj.com
Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law.
THE INTELLIGENT INVESTOR FEBRUARY 27, 2009, 9:37 P.M. ET How Managing Risk With ETFs Can Backfire
By JASON ZWEIG
Article
Comments (14)
Alcohol ads urge us to "drink responsibly." Cigarette packs are emblazoned with the surgeon general's warnings about cancer. And the firms that sell leveraged exchange-traded funds keep begging individual investors not to buy the things because they are meant only for short-term trading and can have erratic long-term returns.
Nonetheless, roughly 13,000 people are killed in alcohol-related crashes each year, over 33 million Americans smoke at least once a day -- and more than $2 billion has poured into leveraged ETFs so far this year, much of it from financial advisers and retail investors who hang on too long.
ETFs are funds that trade during the day like stocks. A leveraged ETF seeks to use futures and other derivatives to multiply the daily return of a market index. Some, called "ultra," "2X" or "3X bull," attempt to double or triple the market's return each day. Others try to double or triple the opposite of an index's return; on a day when the market goes down, these "ultra-short," "inverse 2X" or "3X bear" funds should go up two or three times as much.
On Thursday, the Standard & Poor's 500-stock index dropped 1.6%. ProShares UltraShort S&P500, which tries to deliver twice the inverse of the index's daily return, went up 3.2% -- right on target.
So why bother with a boring index fund when you could double or triple your money by using a leveraged ETF? And why helplessly watch your stocks wither away when an inverse leveraged fund could let you mint money in a falling market?
There are 106 such funds with $46 billion in assets, much of it "hot money" that flies right back out. On Wednesday, trading volume for Direxion Financial Bear 3X totaled 23.1 million shares on only two million shares outstanding -- implying an average holding period of less than 34 minutes.
Leveraged ETFs are perfectly suited to such itchy-fingered traders, who can obsessively adjust their holdings to maintain a targeted level of exposure.
But even some "financial advisers," who run ordinary investors' money, hang onto leveraged ETFs the way a sharpshooter clings to a favorite rifle. And if you don't understand how these funds work, you could take a bullet yourself. Their returns are predictable relative to the index only if you own them for one day or less. Over longer periods, say a week or more, these funds can wander wildly away from the underlying index.
When a market is trending in the same direction, a leveraged ETF can race ahead as it adjusts its leverage to its rising assets, jacking up its exposure to the market's next move. Last Nov. 4 through Nov. 20, the Russell 1000 index of large stocks kept falling until it lost 25.6%. In response, Direxion Large Cap Bear 3X, an inverse fund, went up even more than its triple target; it rose 109.2%, four times as much as the Russell went down.
What happens when a market doesn't take a straight path? Let's say you were bearish on China and invested $10,000 in ProShares UltraShort FTSE/Xinhua China 25 on Oct. 9, 2008. Each day the Chinese market went down, this double-reverse fund went up twice as much. It also fell twice as much on any day when China rose.
These swings make it hard for a leveraged fund to match its targeted return in the long run; each loss requires a bigger gain just to get back to break-even. As the Chinese market heaved up and down over the next nine tumultuous trading days, $10,000 invested in Chinese stocks would have dropped to less than $9,200, a cumulative loss of 8%. Did the ultra-short fund deliver twice the opposite, or a 16% gain? No: According to data from Morningstar, it shriveled to $7,838, a 21.6% loss. So much for longer-term hedging.
Still, many financial advisers believe these funds are a good long-term hedge against falling markets. At a recent conference, roughly 50 financial advisers besieged Matthew Hougan, editor of IndexUniverse.com, a financial Web site, asking him to explain how leveraged ETFs work. Some "are starting to understand," says Mr. Hougan, "but there is still a huge contingent out there who don't."
Like an amen corner, the leveraged ETF firms all say they keep trying to scare off long-term investors. The funds "are not a buy-and-hold vehicle," warns Michael Sapir, chairman of ProShare Advisors. "These products are designed for trading use, not to be hedging tools," insists Carl Resnick, vice president at Rydex Investments. Holding a leveraged ETF for longer than a day, says Andy O'Rourke, marketing chief at Direxion Funds, is "like using a toaster to cook a turkey."
The bottom line: Leveraged ETFs are for day traders. You can't manage long-term risk with a short-term tool -- especially not with one that can blow up in your face.
Write to Jason Zweig at intelligentinvestor@wsj.com
Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law.
Subscribe to:
Posts (Atom)
Posts
