Monday, Apr. 05, 2010
Why Start-Ups Are Charging Into Lithium
By Steven Gray / Detroit
In February, President Barack Obama told the crowd at a Henderson, Nev., high school that not so long ago, the U.S. made barely 2% of the advanced batteries used in the world's electric vehicles. Now, thanks to a multibillion-dollar federal investment, American companies are positioned to increase production tenfold — and potentially control 40% of the global lithium-ion-battery market by 2015. "We've created an entire new industry," Obama said.
Not quite, but certainly the beginnings of one. Demand for lithium-ion batteries is increasing dramatically as electric-car technology improves and prices drop. Nissan has introduced the all-electric Leaf, and this year Chevy will debut the long-anticipated gas-electric Volt. Those and future electric cars need battery packs, and at least a dozen American lithium-battery start-ups are competing with Asian companies such as Sanyo and Hitachi to provide them. "There's a tremendous amount of competition," says David Vieau, chief executive of A123 Systems, a Watertown, Mass., start-up powered by federal money that is vying for the business. (See the history of the electric car.)
And it's a ton of business. The consulting firm Pike Research estimates that the global market for lithium-ion batteries could grow from $877 million this year to $8 billion by 2015. In North America, the market is expected to expand from about $287 million this year to $2.2 billion in 2015.
A123 Systems is a window on how the government's multibillion-dollar electric-vehicle gambit is working. The company was founded at MIT in 2001 with a $100,000 Department of Energy grant. One of its early products was lithium-ion batteries for power-tool maker Black & Decker. Last year, A123 Systems got a $249 million federal grant to open at least three lithium-ion-battery plants in Michigan that will employ hundreds of workers. Michigan is home to or close to many of the plants where electric vehicles are being made, of course, and the state has a surplus of skilled workers. It's not, ahem, a bad choice politically either.
Vieau attributes his company's recent success in part to its deep finances and manufacturing capacity. Customers regularly ask, he says, "Do you have the financial wherewithal to keep up and execute at a large scale?" Companies like A123 are busy wrestling with two key issues facing electric-car batteries: providing enough power to the car's engine and storing enough power to guarantee a defined range — say, 200 miles (about 320 km) — between charges. The goal for electric-car manufacturers is an affordable battery that can handle countless partial charge-discharge cycles over an eight-to-10-year life cycle. The battery has to absorb energy from braking and provide short bursts of power for acceleration. Lithium-ion batteries, with their high density-to-weight ratio, provide the greatest acceleration and range with the fewest batteries compared with lead-acid or nickel-metal-hydride batteries. One big problem: they can overheat and even blow up — bad enough in a single-battery laptop but potentially disastrous in a multibattery electric car. So engineers have been busy resolving the heat problem and refining the batteries' ability to handle partial charge-discharge cycles.
As for affordability, lithium-ion battery packs currently cost about $1,000 per kilowatt-hour of capacity. Which means the GM Volt's 16-kW-h battery pack alone would cost $16,000, according to some industry analysts. The price per kilowatt-hour has to fall below $500 to make production viable — and it will.
Sakti3 is another company trying to create a breakthrough. The company was launched a few years ago at the University of Michigan by an ambitious young engineering professor, Ann Marie Sastry. Sakti3 is developing solid-state (as opposed to liquid) lithium-ion batteries that Sastry believes will enable cars to travel twice as far as batteries do now, allowing the cars to be used the way internal-combustion-engine-driven vehicles are. Her firm is developing prototypes to deliver to automakers later this year. Sastry's 20-employee firm, based in Ann Arbor, has generated millions of dollars in government grants and considerable buzz — but so far no juice.
Automakers, meanwhile, are developing their own battery capability. Ford, for one, believes that designing its own lithium-ion battery packs will help streamline the development of its electric vehicles and reduce the cost. Design experts will be brought in-house, says Nancy Gioia, Ford's director of global electrification. By developing battery packs, Gioia says, "we get the volume and scale of more than 1 million units on our battery-management systems. Our suppliers aren't in a position to do that yet."
While they wait for the U.S. electric-auto market to develop, some new suppliers are looking toward consumer electronic goods and markets outside the U.S. to keep their plants busy and improve quality until the big orders come in. "We're in the early stages of what will be a significant run-up," says A123's Vieau. "There's a lot of business out there." Sastry echoes that view, saying many automakers rely on engine suppliers. "If the dream I and others have is realized, we'll see batteries being treated like engines," she says. Job engines, no less.
Click to Print Find this article at:
http://www.time.com/time/magazine/article/0,9171,1975337,00.html
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Estate Planning Clear and Simple (NY Times)
March 24, 2010
Assemble a Paper Trail, and Make Sure Your Heirs Can Follow It
By PAUL SULLIVAN
NO one wants to think about dying. But refusing to look at the documents that will determine where your money goes when you pass away will not make you live longer. It will just make sorting through everything more difficult for your heirs.
Any review of financial health needs to take into account the legal documents that govern our assets and our lives, if we become incapacitated or die with minor children.
Holly Isdale, managing director at Bessemer Trust, said she likes to break down this task into “high priorities and someday-maybes.” And this seems as realistic a strategy as any to force yourself to review these documents.
WILLS AND TRUSTS The whole notion of the sanctity of a will has been thrown into disarray by the expiration of the estate tax. But the bottom line is that, before you can review your will, you need to have one. And 65 percent of Americans do not, according to a survey released last month by Lawyers.com.
There is no excuse for this. A basic will is cheap and can be facilitated through online sites like legalzoom.com.
Many people think that if they die without much money, their heirs will simply inherit it. They will, eventually. But first the state will appoint a conservator and hire lawyers, the costs of which will be deducted from your estate and ultimately decide how your money is passed on, said Edythe M. DeMarco, first vice president at Merrill Lynch Global Wealth Management. A simple will avoids this.
Once you have a will, it is crucial to keep it up to date. This should be done every five years or whenever there is a major life event. “The pitfall with the will is, they set it and forget it,” said Ken Kilday, a wealth manager at USAA.
In a year when there is no federal estate tax — though there will almost certainly be one in 2011 — reviewing wills and trust documents should be on everyone’s to-do list.
Reviewing both wills and trusts for someone with substantial assets is particularly important this year. Even though there is no estate tax, wills can have clauses that distribute assets to trusts as if the tax still existed. This could end up leaving some heirs too much money and others none at all. And since a federal estate tax will return next year even if Congress does nothing about it, there will be a need to review everything again in 2011.
BENEFICIARIES The form that can often wreak havoc on a family is the beneficiary designation form. It determines who will get your insurance and retirement accounts, so-called contract assets as opposed to financial assets. Many people do not know that it overrides a will.
If you named your brother on your beneficiary designation form for an IRA and die 30 years later without having changed it, your brother, not your spouse or children, gets it.
This happens more often than you would think, advisers said. The reason is forgetfulness. “The worst thing from my perspective is to try to explain to a widow that her deceased husband’s former spouse actually inherits the IRA,” Mr. Kilday said.
Whether this is a high-priority or someday-maybe issue depends on your personal life. But one thing everyone should have is a contingent beneficiary, in case the first one dies before they do. Ms. Isdale said she suspected that many people neglect to name one at the time because they plan to do it later.
HEALTH CARE PROXIES AND GUARDIANSHIP These are two high-priority documents because they address something far more important than money: what happens to you if you are incapacitated, and who cares for your children if you die.
With both, it is essential to make sure the person you have designated is still someone with whom you are in close contact. Often a guardian is named at a child’s birth, but the families move away or lose touch. When it comes to health care, you should also sign a HIPAA, or Health Insurance Portability and Accountability Act, release form so your health care proxy can have access to your medical records.
A related issue is the traditional power of attorney. Many people talk of having a durable power of attorney, but Mr. Kilday points out that if that were the case that person could act on your behalf immediately. What you want is a springing durable power of attorney, which is activated by events you detail.
This brings the conversation back to wills. “The other major pitfall is people have a power of attorney and they think that means they don’t need a will,” Mr. Kilday said. “The problem is that power dies with you.”
TITLING OF ASSETS This is a someday-maybe issue because it can be time-consuming and expensive. For people who would have been subject to the old federal estate tax, for example, it would have made sense to retitle assets like a home in just one name. But, as Ms. Isdale pointed out, not all spouses feel completely comfortable ceding control.
Another issue is the well-meaning parent who, for help with her financial matters, puts one child on her accounts. When she dies, those accounts belong to that child alone, even though her will says the money should be split among all three children.
Even if that child wants to make things right with siblings, he could end up using some of his gift tax exemptions to do so. “You can disclaim it, but it’s messy,” Mr. Kilday said.
SINGLES AND SAME-SEX COUPLES The law always looks for legally recognized family members in dispensing with your estate, but who is going to take care of your affairs if you are not in a traditional marriage?
Someone who is single may want to name a health care proxy who lives closer than a parent who could be thousands of miles away.
Ms. DeMarco said same-sex couples need to be particularly vigilant in their estate and proxy planning. She noted that until a few years ago in Rhode Island, where she works, a domestic partner could not make funeral arrangements; it had to be done by a family member.
Health care proxies are important, but so, too, are the documents that will direct assets to a partner. “For a nonfamily member, it’s a hard and difficult legal road,” she said. “In absence of these documents, the state is going to name the beneficiary, and the law looks to the bloodline.”
BALANCE SHEET If your family cannot find the documents you have worked hard to update, you may have wasted your efforts. Ms. Isdale suggested drawing up a balance sheet that lists the basic information about your assets. She called this a high-priority item and suggested that a more exhaustive one should be on the someday-maybe list.
Mr. Kilday said he advises clients to include a final letter of intent. It has no legal standing, but it can help guide your heirs with what you want done after you’re gone. “Clients kind of chuckle and say, ‘It doesn’t matter to me, I’m dead,’ ” he said. “But from the kids’ perspective they want one last chance to respect and honor you.”
Assemble a Paper Trail, and Make Sure Your Heirs Can Follow It
By PAUL SULLIVAN
NO one wants to think about dying. But refusing to look at the documents that will determine where your money goes when you pass away will not make you live longer. It will just make sorting through everything more difficult for your heirs.
Any review of financial health needs to take into account the legal documents that govern our assets and our lives, if we become incapacitated or die with minor children.
Holly Isdale, managing director at Bessemer Trust, said she likes to break down this task into “high priorities and someday-maybes.” And this seems as realistic a strategy as any to force yourself to review these documents.
WILLS AND TRUSTS The whole notion of the sanctity of a will has been thrown into disarray by the expiration of the estate tax. But the bottom line is that, before you can review your will, you need to have one. And 65 percent of Americans do not, according to a survey released last month by Lawyers.com.
There is no excuse for this. A basic will is cheap and can be facilitated through online sites like legalzoom.com.
Many people think that if they die without much money, their heirs will simply inherit it. They will, eventually. But first the state will appoint a conservator and hire lawyers, the costs of which will be deducted from your estate and ultimately decide how your money is passed on, said Edythe M. DeMarco, first vice president at Merrill Lynch Global Wealth Management. A simple will avoids this.
Once you have a will, it is crucial to keep it up to date. This should be done every five years or whenever there is a major life event. “The pitfall with the will is, they set it and forget it,” said Ken Kilday, a wealth manager at USAA.
In a year when there is no federal estate tax — though there will almost certainly be one in 2011 — reviewing wills and trust documents should be on everyone’s to-do list.
Reviewing both wills and trusts for someone with substantial assets is particularly important this year. Even though there is no estate tax, wills can have clauses that distribute assets to trusts as if the tax still existed. This could end up leaving some heirs too much money and others none at all. And since a federal estate tax will return next year even if Congress does nothing about it, there will be a need to review everything again in 2011.
BENEFICIARIES The form that can often wreak havoc on a family is the beneficiary designation form. It determines who will get your insurance and retirement accounts, so-called contract assets as opposed to financial assets. Many people do not know that it overrides a will.
If you named your brother on your beneficiary designation form for an IRA and die 30 years later without having changed it, your brother, not your spouse or children, gets it.
This happens more often than you would think, advisers said. The reason is forgetfulness. “The worst thing from my perspective is to try to explain to a widow that her deceased husband’s former spouse actually inherits the IRA,” Mr. Kilday said.
Whether this is a high-priority or someday-maybe issue depends on your personal life. But one thing everyone should have is a contingent beneficiary, in case the first one dies before they do. Ms. Isdale said she suspected that many people neglect to name one at the time because they plan to do it later.
HEALTH CARE PROXIES AND GUARDIANSHIP These are two high-priority documents because they address something far more important than money: what happens to you if you are incapacitated, and who cares for your children if you die.
With both, it is essential to make sure the person you have designated is still someone with whom you are in close contact. Often a guardian is named at a child’s birth, but the families move away or lose touch. When it comes to health care, you should also sign a HIPAA, or Health Insurance Portability and Accountability Act, release form so your health care proxy can have access to your medical records.
A related issue is the traditional power of attorney. Many people talk of having a durable power of attorney, but Mr. Kilday points out that if that were the case that person could act on your behalf immediately. What you want is a springing durable power of attorney, which is activated by events you detail.
This brings the conversation back to wills. “The other major pitfall is people have a power of attorney and they think that means they don’t need a will,” Mr. Kilday said. “The problem is that power dies with you.”
TITLING OF ASSETS This is a someday-maybe issue because it can be time-consuming and expensive. For people who would have been subject to the old federal estate tax, for example, it would have made sense to retitle assets like a home in just one name. But, as Ms. Isdale pointed out, not all spouses feel completely comfortable ceding control.
Another issue is the well-meaning parent who, for help with her financial matters, puts one child on her accounts. When she dies, those accounts belong to that child alone, even though her will says the money should be split among all three children.
Even if that child wants to make things right with siblings, he could end up using some of his gift tax exemptions to do so. “You can disclaim it, but it’s messy,” Mr. Kilday said.
SINGLES AND SAME-SEX COUPLES The law always looks for legally recognized family members in dispensing with your estate, but who is going to take care of your affairs if you are not in a traditional marriage?
Someone who is single may want to name a health care proxy who lives closer than a parent who could be thousands of miles away.
Ms. DeMarco said same-sex couples need to be particularly vigilant in their estate and proxy planning. She noted that until a few years ago in Rhode Island, where she works, a domestic partner could not make funeral arrangements; it had to be done by a family member.
Health care proxies are important, but so, too, are the documents that will direct assets to a partner. “For a nonfamily member, it’s a hard and difficult legal road,” she said. “In absence of these documents, the state is going to name the beneficiary, and the law looks to the bloodline.”
BALANCE SHEET If your family cannot find the documents you have worked hard to update, you may have wasted your efforts. Ms. Isdale suggested drawing up a balance sheet that lists the basic information about your assets. She called this a high-priority item and suggested that a more exhaustive one should be on the someday-maybe list.
Mr. Kilday said he advises clients to include a final letter of intent. It has no legal standing, but it can help guide your heirs with what you want done after you’re gone. “Clients kind of chuckle and say, ‘It doesn’t matter to me, I’m dead,’ ” he said. “But from the kids’ perspective they want one last chance to respect and honor you.”
Taking Advantage of Mortgage Rates Now (New York Times)
March 19, 2010
When Not to Pay Down a Mortgage
By RON LIEBER
This week, the Federal Reserve reaffirmed its intention to stop buying mortgage-backed securities, signaling the likelihood that the mortgage rates you can get today are as good as they’re going to be for a long while. Once the Fed stops buying, after all, rates are likely to go up.
And current rates are quite good. At about 5 percent, in fact, they’re so good that they’ve helped change the age-old debate over whether homeowners should make extra mortgage payments to pay off their debt well before their loan periods are up.
Back when rates ran at 7 or 8 percent, making extra payments offered what amounted to a guaranteed return on your money. When you’re ridding yourself of debt that costs you much less, however, it’s easier to imagine a future when you could more easily earn a higher return by investing those potential extra mortgage payments someplace else.
Meanwhile, at a time when just about everyone knows someone who is unemployed or who owes more on a home loan than the house is worth, keeping extra cash someplace more liquid than a mortgage seems like a safer approach.
So is the case against extra payments closed for good, given that so many people have locked in rock-bottom mortgage rates for the long haul?
The answer depends on two things: how likely you are to leave the extra money in savings and how good it would feel to wipe your debt out years earlier than your mortgage requires.
THE BASICS First, let’s dispense with the standard boilerplate. Don’t even think about making extra mortgage payments unless you’ve paid off higher-interest debt. Credit card debt is the easiest win here.
Also, if you’re not saving enough to get the full match from your employer in a 401(k) or similar account, increase your savings there first. And don’t make extra mortgage payments if you don’t already have a decent emergency fund set aside.
YOUR REAL INTEREST RATE Now, take a look at the interest rate on your mortgage. That 5 percent? It’s not your real rate if you get some of the interest back each year in the form of a tax deduction.
Let’s say you have a household income of $175,000 and are paying 35 percent of that in total to the state and federal tax collectors. If you pay $20,000 in mortgage interest each year on a loan that charges 5 percent, the deduction effectively brings your taxable income down to $155,000.
As a result, you’re paying $7,500 (35 percent of $20,000) less in taxes than you would have without the deduction. So ultimately, you’re not really paying $20,000 in interest at all; your net cost is $12,500 after you subtract the $7,500 tax savings.
And that makes your effective, after-tax interest rate on your loan just 3.25 percent, which is simply 35 percent (your tax rate) less than the original 5 percent.
BETTER RETURNS? So any money you set aside in lieu of making extra mortgage payments would need to earn more than 3.25 percent annually. That seems like a reasonable possibility in the future.
In fact, you could have done that well during the supposedly lost decade we just finished. Vanguard Wellington, for instance, a popular low-cost mutual fund that holds about 65 percent stocks and 35 percent bonds and other short-term securities, earned an average annual return of 6.15 percent in the 10 years ended Dec. 31, 2009.
The Vanguard Balanced Index Fund would not have outperformed our 3.25 percent benchmark, however, as it only returned 2.64 percent over the same 10-year period.
STORING THE SAVINGS Wouldn’t taxes eat into the returns from the money you’d save instead of making extra mortgage payments? Not if you place it into an account shielded from taxes. A Roth individual retirement account would fit the bill here, as would a 529 college savings account or health savings account.
Bruce Primeau, whose note to his financial planning clients at Wide Financial Group in Minneapolis on this topic inspired me to re-examine it, adds that this isn’t simply about keeping more assets under his watch so he can earn a better living. “I’m not telling them that the money has to come to me,” he said. “A 401(k) match beats the return on paying a mortgage off automatically. There’s real estate and buying employer stock through a purchase plan at a 15 percent discount and all kinds of things.”
Then you need to preserve those savings. When extra money goes toward a mortgage, it’s hard to get at it when the urge strikes to flee to an Asian beach for a few weeks of playtime. If the money is not locked up in retirement or college savings, however, you may be tempted to spend it.
THE LIQUIDITY PROBLEM Capital-gains taxes might eventually come due with some of these investments, and the rate could well rise above the current 15 percent long-term rate before too long. Still, having some of your savings in a taxable account makes sense for several reasons.
If you hit a stretch of long-term unemployment after having plowed most of your extra cash into paying down your mortgage, your bank probably won’t pat you on the back for being a good saver and give the money back to you. Nor is it likely to let you borrow it through a home equity loan if you have no income with which to repay it.
Elaine Scoggins, who had the mortgage department chief reporting to her at a bank before she became a financial planner, suggests imagining a situation where you need to move quickly but can’t sell your home or extract equity to use as a down payment in your new town. Given that possibility, why create more home equity through extra mortgage payments than you have to?
“The whole housing debacle has reminded us all, including me, that real estate is not liquid,” said Ms. Scoggins, who is the client experience director for Merriman, a planning firm in Seattle. “And it takes cash to support it.”
Those who have used their cash in an attempt to be conscientious have learned some tough lessons, meanwhile. Imagine people who scraped together a 5 percent down payment and bought a home in Florida or Arizona in 2005 and then made extra mortgage payments the first two years to try to increase their equity. Now, post-collapse, they owe, say, 30 percent more than their homes are worth and need to seriously consider walking away from the loan — and all of those extra payments.
REASON AND EMOTION So the reasoned case for making no extra payments is very strong. But there’s one counterpoint that almost always carries the day, even when there’s only a mild risk with the financial strategy of putting extra money elsewhere.
And it’s this: I need to be able to sleep at night.
Even Mr. Primeau concedes here. “Emotionally, you’re right, and financially I’m right, and emotionally, you win,” he said. “If emotionally, people want to pay down their debt, then that’s what I help them to do.”
If you’ve just started paying down your mortgage, any extra payments should go toward principal (make sure your mortgage company is applying it properly). That will have the effect of shortening the term of your loan from, say, 30 to 25 years, depending on how many extra payments you make. The extra payments won’t lower your monthly payment, but they will reduce your balance.
Many people who are years into their mortgages — and perhaps paying less in interest and getting less of a tax break as a result — tend to develop stronger feelings about making extra payments. Those feelings are often even more acute as retirement approaches and homeowners become determined to quit work with no debt to their names.
Those who do retire their debt rarely regret it or wring their hands over the big gains they might have scored by investing the money elsewhere. Tim Maurer, a financial planner and co-author of “The Financial Crossroads,” describes the feeling that washes over people who have paid their last mortgage bill as “beholden to no one.”
So he doesn’t feel as if it’s his business to separate people from their emotions if they feel strongly about working toward a debt-free existence. “The whole point of planning is to make life better,” he said. “It’s not to have more dollars at the end of the day.”
When Not to Pay Down a Mortgage
By RON LIEBER
This week, the Federal Reserve reaffirmed its intention to stop buying mortgage-backed securities, signaling the likelihood that the mortgage rates you can get today are as good as they’re going to be for a long while. Once the Fed stops buying, after all, rates are likely to go up.
And current rates are quite good. At about 5 percent, in fact, they’re so good that they’ve helped change the age-old debate over whether homeowners should make extra mortgage payments to pay off their debt well before their loan periods are up.
Back when rates ran at 7 or 8 percent, making extra payments offered what amounted to a guaranteed return on your money. When you’re ridding yourself of debt that costs you much less, however, it’s easier to imagine a future when you could more easily earn a higher return by investing those potential extra mortgage payments someplace else.
Meanwhile, at a time when just about everyone knows someone who is unemployed or who owes more on a home loan than the house is worth, keeping extra cash someplace more liquid than a mortgage seems like a safer approach.
So is the case against extra payments closed for good, given that so many people have locked in rock-bottom mortgage rates for the long haul?
The answer depends on two things: how likely you are to leave the extra money in savings and how good it would feel to wipe your debt out years earlier than your mortgage requires.
THE BASICS First, let’s dispense with the standard boilerplate. Don’t even think about making extra mortgage payments unless you’ve paid off higher-interest debt. Credit card debt is the easiest win here.
Also, if you’re not saving enough to get the full match from your employer in a 401(k) or similar account, increase your savings there first. And don’t make extra mortgage payments if you don’t already have a decent emergency fund set aside.
YOUR REAL INTEREST RATE Now, take a look at the interest rate on your mortgage. That 5 percent? It’s not your real rate if you get some of the interest back each year in the form of a tax deduction.
Let’s say you have a household income of $175,000 and are paying 35 percent of that in total to the state and federal tax collectors. If you pay $20,000 in mortgage interest each year on a loan that charges 5 percent, the deduction effectively brings your taxable income down to $155,000.
As a result, you’re paying $7,500 (35 percent of $20,000) less in taxes than you would have without the deduction. So ultimately, you’re not really paying $20,000 in interest at all; your net cost is $12,500 after you subtract the $7,500 tax savings.
And that makes your effective, after-tax interest rate on your loan just 3.25 percent, which is simply 35 percent (your tax rate) less than the original 5 percent.
BETTER RETURNS? So any money you set aside in lieu of making extra mortgage payments would need to earn more than 3.25 percent annually. That seems like a reasonable possibility in the future.
In fact, you could have done that well during the supposedly lost decade we just finished. Vanguard Wellington, for instance, a popular low-cost mutual fund that holds about 65 percent stocks and 35 percent bonds and other short-term securities, earned an average annual return of 6.15 percent in the 10 years ended Dec. 31, 2009.
The Vanguard Balanced Index Fund would not have outperformed our 3.25 percent benchmark, however, as it only returned 2.64 percent over the same 10-year period.
STORING THE SAVINGS Wouldn’t taxes eat into the returns from the money you’d save instead of making extra mortgage payments? Not if you place it into an account shielded from taxes. A Roth individual retirement account would fit the bill here, as would a 529 college savings account or health savings account.
Bruce Primeau, whose note to his financial planning clients at Wide Financial Group in Minneapolis on this topic inspired me to re-examine it, adds that this isn’t simply about keeping more assets under his watch so he can earn a better living. “I’m not telling them that the money has to come to me,” he said. “A 401(k) match beats the return on paying a mortgage off automatically. There’s real estate and buying employer stock through a purchase plan at a 15 percent discount and all kinds of things.”
Then you need to preserve those savings. When extra money goes toward a mortgage, it’s hard to get at it when the urge strikes to flee to an Asian beach for a few weeks of playtime. If the money is not locked up in retirement or college savings, however, you may be tempted to spend it.
THE LIQUIDITY PROBLEM Capital-gains taxes might eventually come due with some of these investments, and the rate could well rise above the current 15 percent long-term rate before too long. Still, having some of your savings in a taxable account makes sense for several reasons.
If you hit a stretch of long-term unemployment after having plowed most of your extra cash into paying down your mortgage, your bank probably won’t pat you on the back for being a good saver and give the money back to you. Nor is it likely to let you borrow it through a home equity loan if you have no income with which to repay it.
Elaine Scoggins, who had the mortgage department chief reporting to her at a bank before she became a financial planner, suggests imagining a situation where you need to move quickly but can’t sell your home or extract equity to use as a down payment in your new town. Given that possibility, why create more home equity through extra mortgage payments than you have to?
“The whole housing debacle has reminded us all, including me, that real estate is not liquid,” said Ms. Scoggins, who is the client experience director for Merriman, a planning firm in Seattle. “And it takes cash to support it.”
Those who have used their cash in an attempt to be conscientious have learned some tough lessons, meanwhile. Imagine people who scraped together a 5 percent down payment and bought a home in Florida or Arizona in 2005 and then made extra mortgage payments the first two years to try to increase their equity. Now, post-collapse, they owe, say, 30 percent more than their homes are worth and need to seriously consider walking away from the loan — and all of those extra payments.
REASON AND EMOTION So the reasoned case for making no extra payments is very strong. But there’s one counterpoint that almost always carries the day, even when there’s only a mild risk with the financial strategy of putting extra money elsewhere.
And it’s this: I need to be able to sleep at night.
Even Mr. Primeau concedes here. “Emotionally, you’re right, and financially I’m right, and emotionally, you win,” he said. “If emotionally, people want to pay down their debt, then that’s what I help them to do.”
If you’ve just started paying down your mortgage, any extra payments should go toward principal (make sure your mortgage company is applying it properly). That will have the effect of shortening the term of your loan from, say, 30 to 25 years, depending on how many extra payments you make. The extra payments won’t lower your monthly payment, but they will reduce your balance.
Many people who are years into their mortgages — and perhaps paying less in interest and getting less of a tax break as a result — tend to develop stronger feelings about making extra payments. Those feelings are often even more acute as retirement approaches and homeowners become determined to quit work with no debt to their names.
Those who do retire their debt rarely regret it or wring their hands over the big gains they might have scored by investing the money elsewhere. Tim Maurer, a financial planner and co-author of “The Financial Crossroads,” describes the feeling that washes over people who have paid their last mortgage bill as “beholden to no one.”
So he doesn’t feel as if it’s his business to separate people from their emotions if they feel strongly about working toward a debt-free existence. “The whole point of planning is to make life better,” he said. “It’s not to have more dollars at the end of the day.”
States in Trouble: Pension Obligations and Credit Ratings (Barrons)
Barron's Cover | MONDAY, MARCH 15, 2010
The $2 Trillion Hole
By JONATHAN R. LAING | MORE ARTICLES BY AUTHOR
Promised pensions benefits for public-sector employees represent a massive overhang that threatens the financial future of many cities and states.
Obama and Annuities (New York TImes)
January 30, 2010
Your Money
The Unloved Annuity Gets a Hug From Obama
By RON LIEBER
Annuities: The official retirement vehicle of the Obama administration.
As slogans go, it’s hardly “Keep Hope Alive,” or even “Change We Can Believe In.”
But there were annuities, in a report from the administration’s Middle Class Task Force that came out this week. They are among the tools the administration is promoting as it tries to give Americans a better shot at a more secure retirement.At its simplest, which is how the White House seems to want to keep it, an annuity is something you buy with a large pile of cash in exchange for a monthly check for the rest of your life.
If the biggest risk in retirement is running out of money, an annuity can help guarantee that you won’t. In effect, it allows you to buy the pension that your employer has probably stopped offering, and it can help pick up where Social Security leaves off.
President Obama did not discuss annuities in his State of the Union address on Wednesday night, probably figuring that viewers had enough problems staying awake. But the mere mention of them by the task force was enough to send executives at the insurance companies that sell the products into paroxysms of glee.
“I never thought I’d have the president as a wholesaler for us,” said Christopher O. Blunt, executive vice president of retirement income security at the New York Life Insurance Company. “This is awesome. I’m trying to see if I can get him to do a big broker meeting for us.”
He’s unlikely to turn up for such an event just yet. After all, the announcement from the White House did make it clear that the administration was looking to promote “annuities and other forms of guaranteed lifetime income.” That suggests the administration is open to other solutions, though there are not many others that are as simple as the basic fixed immediate annuity (also known as a single premium immediate annuity) that delivers a regular check for life.
Still, all of this attention from the president is a stunning turn of events for a rather unloved product. Many consumers reflexively run in fear when salesmen turn up pitching high-cost and complex variable annuities, which evolved from their simpler siblings decades ago. Today, the Securities and Exchange Commission maintains an extensive warning document on its Web site for investors considering the variable variety.
Meanwhile, almost all employees on the precipice of retirement who have access to annuities as a payout option steer clear when their companies offer them. While various surveys show that roughly 15 to 25 percent of corporations offer annuities to workers who are retiring, including big employers like I.B.M., a 2009 Hewitt Associates study reported that just 1 percent of workers actually bought one.
“I joke sometimes that we’re the best ice hockey players in Ecuador,” said Mr. Blunt of New York Life, which sells more fixed annuities than any other company, according to Limra, a research firm that tracks the industry.
So what are these soon-to-be retirees so afraid of? And what makes the White House so sure it can change their minds?
Let’s start with the fears. Early on, the knock on annuities was that once you died, the money was gone. So let’s say a 65-year-old man in Illinois turned over $100,000 in exchange for $632 a month for life, a recent quote from immediateannuities.com. If he died at 67, his heirs would get nothing while he would have collected only about $15,000. (On the other hand, it would take him until age 78 to get $100,000 back, but that doesn’t take inflation into account.)
The industry solved this by coming up with variations on the policy, allowing people to include a spouse in the annuity or guarantee that payouts to beneficiaries would last at least 10 or 20 years. This costs extra, of course, meaning your monthly payment is lower.
Others worried about inflation, so now there are annuities whose payments rise a few percentage points each year or are pegged to the Consumer Price Index. These cost extra, too (often a lot extra).
You see the pattern here. Every time someone had an objection — the need for a bunch of payments at once, a lump sum in an emergency or concern about rising interest rates — the industry created a rider to add to policies to make the concern go away (and make the monthly payment smaller).
Besides, people need to have saved enough to purchase a decent monthly annuity payout in the first place. But plenty of retirees haven’t been saving in a 401(k) or individual retirement account long enough to have a good-size lump sum.
There are also stockbrokers and financial planners standing in the way. Once money goes into an annuity, they can’t earn commissions from trading it anymore and may not be able to charge fees for managing it. Financial advisers have a charming term for this phenomenon — annuicide. You insure, and their revenue dies. So, many of them will try to talk you out of it.
One reasonable point they might make is that insurance companies can die, leaving your annuity worthless. State guaranty agencies exist, but they may cover only $100,000 to $500,000. I’ve linked to a list of the agencies in the Web version of this column so you can see what they insure.
Even if you get over all these mental hurdles, however, the hardest one may be the difficulty of seeing a big number suddenly turn small.
“It’s the wealth illusion, the sense that my 401(k) account balance is the largest wad of dollars I’ll ever see in my lifetime, and I feel pretty good about having that,” said J. Mark Iwry, senior adviser to the secretary and deputy assistant secretary for retirement and health policy for the Treasury Department. “Meanwhile, I feel pretty bad about the seemingly small amount of annuity income that large balance would purchase and about the prospect of handing it over to an entity that will keep it all if I’m hit by the proverbial bus after walking out of their office.” So how might the Obama administration solve this? It could get behind a Senate bill that would require retirement plan administrators to give account holders an annual estimate of what sort of annuity check their savings would buy. That way, people would get used to thinking about their lump sum as a monthly stream.
Tax incentives could help, too. A recent House bill called for waiving 50 percent of the taxes on the first $10,000 in annuity payouts each year. “If this is behavior that the administration is trying to inspire, then it’s not that long of a leap to think that maybe they’ll start to promote some version of these bills,” said Craig Hemke, president of BuyaPension.com, which sells basic annuities (and offers some good educational material for people who are trying to learn about the products).
Mr. Iwry, who is one of the intellectual architects of the administration’s examination of annuities, wouldn’t say much about what might happen next. But one paper he co-wrote two years ago suggests a clue.
As the treatise suggests, the administration could nudge employers into automatically depositing, say, half of new retirees’ lump sums into a basic annuity or other lifetime income product, unless they opt out. Then, they could test the thing out for two years and see how that monthly paycheck felt. If they liked it, they could keep the annuity. If not, they could cancel it without penalty and get the rest of their money back.
Annuities won’t be right for everyone (people in poor health should probably steer clear). And they’re not right for everything because it rarely makes sense to put all of your money in a single product or investment.
You could, for instance, use an annuity to cover the basic expenses that your Social Security check doesn’t cover. You might also use the money to buy long-term care insurance, which would keep nursing home bills from becoming a budget-destroyer.
But the president has one thing right: The basic annuity is almost certainly underused. Sure, you may be able to arrange a better income stream on your own, but not without a lot of help from a financial planner or a lot of time managing it yourself. Then there’s the possibility, however small, that you’ll spend too much in spite of yourself or run into a once-in-a-generation market event that will cause you to run out of money sooner than you expected.
All of that makes basic annuities the ultimate test of risk aversion. If you buy some, you and your heirs may have less money than if you’d kept your retirement savings in investments. Then again, if you guarantee enough of your retirement income, you — and those same heirs — won’t have to worry about how you’re going to meet your basic needs.
Your Money
The Unloved Annuity Gets a Hug From Obama
By RON LIEBER
Annuities: The official retirement vehicle of the Obama administration.
As slogans go, it’s hardly “Keep Hope Alive,” or even “Change We Can Believe In.”
But there were annuities, in a report from the administration’s Middle Class Task Force that came out this week. They are among the tools the administration is promoting as it tries to give Americans a better shot at a more secure retirement.At its simplest, which is how the White House seems to want to keep it, an annuity is something you buy with a large pile of cash in exchange for a monthly check for the rest of your life.
If the biggest risk in retirement is running out of money, an annuity can help guarantee that you won’t. In effect, it allows you to buy the pension that your employer has probably stopped offering, and it can help pick up where Social Security leaves off.
President Obama did not discuss annuities in his State of the Union address on Wednesday night, probably figuring that viewers had enough problems staying awake. But the mere mention of them by the task force was enough to send executives at the insurance companies that sell the products into paroxysms of glee.
“I never thought I’d have the president as a wholesaler for us,” said Christopher O. Blunt, executive vice president of retirement income security at the New York Life Insurance Company. “This is awesome. I’m trying to see if I can get him to do a big broker meeting for us.”
He’s unlikely to turn up for such an event just yet. After all, the announcement from the White House did make it clear that the administration was looking to promote “annuities and other forms of guaranteed lifetime income.” That suggests the administration is open to other solutions, though there are not many others that are as simple as the basic fixed immediate annuity (also known as a single premium immediate annuity) that delivers a regular check for life.
Still, all of this attention from the president is a stunning turn of events for a rather unloved product. Many consumers reflexively run in fear when salesmen turn up pitching high-cost and complex variable annuities, which evolved from their simpler siblings decades ago. Today, the Securities and Exchange Commission maintains an extensive warning document on its Web site for investors considering the variable variety.
Meanwhile, almost all employees on the precipice of retirement who have access to annuities as a payout option steer clear when their companies offer them. While various surveys show that roughly 15 to 25 percent of corporations offer annuities to workers who are retiring, including big employers like I.B.M., a 2009 Hewitt Associates study reported that just 1 percent of workers actually bought one.
“I joke sometimes that we’re the best ice hockey players in Ecuador,” said Mr. Blunt of New York Life, which sells more fixed annuities than any other company, according to Limra, a research firm that tracks the industry.
So what are these soon-to-be retirees so afraid of? And what makes the White House so sure it can change their minds?
Let’s start with the fears. Early on, the knock on annuities was that once you died, the money was gone. So let’s say a 65-year-old man in Illinois turned over $100,000 in exchange for $632 a month for life, a recent quote from immediateannuities.com. If he died at 67, his heirs would get nothing while he would have collected only about $15,000. (On the other hand, it would take him until age 78 to get $100,000 back, but that doesn’t take inflation into account.)
The industry solved this by coming up with variations on the policy, allowing people to include a spouse in the annuity or guarantee that payouts to beneficiaries would last at least 10 or 20 years. This costs extra, of course, meaning your monthly payment is lower.
Others worried about inflation, so now there are annuities whose payments rise a few percentage points each year or are pegged to the Consumer Price Index. These cost extra, too (often a lot extra).
You see the pattern here. Every time someone had an objection — the need for a bunch of payments at once, a lump sum in an emergency or concern about rising interest rates — the industry created a rider to add to policies to make the concern go away (and make the monthly payment smaller).
Besides, people need to have saved enough to purchase a decent monthly annuity payout in the first place. But plenty of retirees haven’t been saving in a 401(k) or individual retirement account long enough to have a good-size lump sum.
There are also stockbrokers and financial planners standing in the way. Once money goes into an annuity, they can’t earn commissions from trading it anymore and may not be able to charge fees for managing it. Financial advisers have a charming term for this phenomenon — annuicide. You insure, and their revenue dies. So, many of them will try to talk you out of it.
One reasonable point they might make is that insurance companies can die, leaving your annuity worthless. State guaranty agencies exist, but they may cover only $100,000 to $500,000. I’ve linked to a list of the agencies in the Web version of this column so you can see what they insure.
Even if you get over all these mental hurdles, however, the hardest one may be the difficulty of seeing a big number suddenly turn small.
“It’s the wealth illusion, the sense that my 401(k) account balance is the largest wad of dollars I’ll ever see in my lifetime, and I feel pretty good about having that,” said J. Mark Iwry, senior adviser to the secretary and deputy assistant secretary for retirement and health policy for the Treasury Department. “Meanwhile, I feel pretty bad about the seemingly small amount of annuity income that large balance would purchase and about the prospect of handing it over to an entity that will keep it all if I’m hit by the proverbial bus after walking out of their office.” So how might the Obama administration solve this? It could get behind a Senate bill that would require retirement plan administrators to give account holders an annual estimate of what sort of annuity check their savings would buy. That way, people would get used to thinking about their lump sum as a monthly stream.
Tax incentives could help, too. A recent House bill called for waiving 50 percent of the taxes on the first $10,000 in annuity payouts each year. “If this is behavior that the administration is trying to inspire, then it’s not that long of a leap to think that maybe they’ll start to promote some version of these bills,” said Craig Hemke, president of BuyaPension.com, which sells basic annuities (and offers some good educational material for people who are trying to learn about the products).
Mr. Iwry, who is one of the intellectual architects of the administration’s examination of annuities, wouldn’t say much about what might happen next. But one paper he co-wrote two years ago suggests a clue.
As the treatise suggests, the administration could nudge employers into automatically depositing, say, half of new retirees’ lump sums into a basic annuity or other lifetime income product, unless they opt out. Then, they could test the thing out for two years and see how that monthly paycheck felt. If they liked it, they could keep the annuity. If not, they could cancel it without penalty and get the rest of their money back.
Annuities won’t be right for everyone (people in poor health should probably steer clear). And they’re not right for everything because it rarely makes sense to put all of your money in a single product or investment.
You could, for instance, use an annuity to cover the basic expenses that your Social Security check doesn’t cover. You might also use the money to buy long-term care insurance, which would keep nursing home bills from becoming a budget-destroyer.
But the president has one thing right: The basic annuity is almost certainly underused. Sure, you may be able to arrange a better income stream on your own, but not without a lot of help from a financial planner or a lot of time managing it yourself. Then there’s the possibility, however small, that you’ll spend too much in spite of yourself or run into a once-in-a-generation market event that will cause you to run out of money sooner than you expected.
All of that makes basic annuities the ultimate test of risk aversion. If you buy some, you and your heirs may have less money than if you’d kept your retirement savings in investments. Then again, if you guarantee enough of your retirement income, you — and those same heirs — won’t have to worry about how you’re going to meet your basic needs.
Investing Behavior - Men vs Women (N Y Times)
March 12, 2010
How Men’s Overconfidence Hurts Them as Investors
By JEFF SOMMER
MEN and women invest differently, a growing body of research has found. And in at least one important respect, women may be better at it.
The latest data comes from Vanguard, the mutual fund company. Among 2.7 million people with I.R.A.’s at the company, it found that during the financial crisis of 2008 and 2009, men were much more likely than women to sell their shares at stock market lows. Those sales presumably meant big losses — and missing the start of the market rally that began a year ago.
Male investors, as a group, appear to be overconfident, said John Ameriks, head of Vanguard Investment Counseling and Research and a co-author of the study. “There’s been a lot of academic research suggesting that men think they know what they’re doing, even when they really don’t know what they’re doing,” he said.
Women, on the other hand, appear more likely to acknowledge when they don’t know something — like the direction of the stock market or of the price of a stock or a bond.
Staying the course and minimizing costs — selling high and buying low, if you trade at all — are the classic characteristics of good long-term, buy-and-hold investors. But during the financial crisis, the Vanguard study showed, men were more likely than women to trade — and to do so at the wrong times.
That fits the patterns found in path-breaking research by Brad M. Barber of the University of California, Davis, and Terrance Odean, now at the University of California, Berkeley. In a 2001 study titled, “Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment,” they analyzed the investing behavior of more than 35,000 households from a large discount brokerage firm. All else being equal, men traded stocks nearly 50 percent more often than women. This added trading drove up the men’s costs and lowered their returns.
The economists found that while both sexes reduced net returns through trading, men did so by 0.94 percentage points more per year.
In a telephone interview, Professor Barber said, “In general, overconfident investors are going to be interpreting what’s going on around them and feeling they are able make decisions that they’re really not equipped to make.”
Short-term financial news often amounts to little more than meaningless “noise,” he said. Far more than women, men try to make sense out of this noise, and to no avail.
Of course, gender generalizations must be taken with caution: they clearly don’t apply to all men or all women. “The differences among women and the differences among men are much greater than the differences between men and women,” he said.
Nevertheless, numerous studies show that men are more prone to make this particular mistake than women.
Women have also been shown to be more risk-averse than men. In portfolio selection, women tend to have a greater preference for fixed-income investments. That could cause their portfolio returns to lag over the long run, assuming that stocks outperform bonds — though in a shaky market like the one of the last decade, this greater caution might be beneficial.
Selling volatile stocks in a down market — as male I.R.A. investors did more often than women, according to the Vanguard data — might seem to protect a portfolio. But that isn’t necessarily so. Selling before the market falls and buying after it falls is the smart move. For long-term investors, though, the best strategy may be to ignore short-term market movements (perhaps rebalancing a diversified portfolio every so often).
Gender differences appear to extend to other financial behavior. For example, women who are C.E.O.’s and company directors tend to pay a lower premium in corporate takeovers, saving their shareholders a bundle, according to a 2008 study of mergers and acquisitions by Maurice D. Levi, Kai Li and Feng Zhang of the University of British Columbia.
What explains these differences? The answer isn’t clear.
“Is it biological, or cultural?” Professor Barber asked. “Nature or nurture? At this point, we don’t know.”
Plenty of research is under way, though. Over the last five years, brain-imaging technology has made it possible to determine “what is happening in the brain just before people make financial decisions,” said Brian Knutson, a Stanford psychologist and neuroscientist.
Researchers have found that activating the nucleus accumbens — a brain region that is stimulated when you eat delicious food or look at an attractive person — can affect financial risk-taking. When young Stanford men were shown pictures of partially clothed men and women kissing, he said, that region of their brains was activated. And when they were then given financial tests, the men became more likely to “make high-risk gambles.”
Women didn’t respond much to the same pictures, he said; it’s possible the researchers didn’t test enough women or that they haven’t found the right stimuli.
Others studying the effects of hormones on financial behavior have found correlations between testosterone and risk-taking.
Alexandra Bernasek, a professor of economics at Colorado State University, said that the weight of history — enormous gender disparities in earnings, wealth, power and social status — might explain many behavioral differences. It’s also possible, she said, that evolutionary psychology accounts for some of them. Before the dawn of history, aggressive risk-taking might have given men an advantage in finding mates, she said, while women might have become more risk-averse to protect their offspring.
Science may eventually provide some answers. In the meantime, she said, it would be a mistake to “force women into riskier financial behavior” that may be inappropriate, both for them and for society at large.
“Excessive risk-taking has gotten all of us into a lot of trouble,” she said. “That’s certainly one
of the lessons of the financial crisis.”
How Men’s Overconfidence Hurts Them as Investors
By JEFF SOMMER
MEN and women invest differently, a growing body of research has found. And in at least one important respect, women may be better at it.
The latest data comes from Vanguard, the mutual fund company. Among 2.7 million people with I.R.A.’s at the company, it found that during the financial crisis of 2008 and 2009, men were much more likely than women to sell their shares at stock market lows. Those sales presumably meant big losses — and missing the start of the market rally that began a year ago.
Male investors, as a group, appear to be overconfident, said John Ameriks, head of Vanguard Investment Counseling and Research and a co-author of the study. “There’s been a lot of academic research suggesting that men think they know what they’re doing, even when they really don’t know what they’re doing,” he said.
Women, on the other hand, appear more likely to acknowledge when they don’t know something — like the direction of the stock market or of the price of a stock or a bond.
Staying the course and minimizing costs — selling high and buying low, if you trade at all — are the classic characteristics of good long-term, buy-and-hold investors. But during the financial crisis, the Vanguard study showed, men were more likely than women to trade — and to do so at the wrong times.
That fits the patterns found in path-breaking research by Brad M. Barber of the University of California, Davis, and Terrance Odean, now at the University of California, Berkeley. In a 2001 study titled, “Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment,” they analyzed the investing behavior of more than 35,000 households from a large discount brokerage firm. All else being equal, men traded stocks nearly 50 percent more often than women. This added trading drove up the men’s costs and lowered their returns.
The economists found that while both sexes reduced net returns through trading, men did so by 0.94 percentage points more per year.
In a telephone interview, Professor Barber said, “In general, overconfident investors are going to be interpreting what’s going on around them and feeling they are able make decisions that they’re really not equipped to make.”
Short-term financial news often amounts to little more than meaningless “noise,” he said. Far more than women, men try to make sense out of this noise, and to no avail.
Of course, gender generalizations must be taken with caution: they clearly don’t apply to all men or all women. “The differences among women and the differences among men are much greater than the differences between men and women,” he said.
Nevertheless, numerous studies show that men are more prone to make this particular mistake than women.
Women have also been shown to be more risk-averse than men. In portfolio selection, women tend to have a greater preference for fixed-income investments. That could cause their portfolio returns to lag over the long run, assuming that stocks outperform bonds — though in a shaky market like the one of the last decade, this greater caution might be beneficial.
Selling volatile stocks in a down market — as male I.R.A. investors did more often than women, according to the Vanguard data — might seem to protect a portfolio. But that isn’t necessarily so. Selling before the market falls and buying after it falls is the smart move. For long-term investors, though, the best strategy may be to ignore short-term market movements (perhaps rebalancing a diversified portfolio every so often).
Gender differences appear to extend to other financial behavior. For example, women who are C.E.O.’s and company directors tend to pay a lower premium in corporate takeovers, saving their shareholders a bundle, according to a 2008 study of mergers and acquisitions by Maurice D. Levi, Kai Li and Feng Zhang of the University of British Columbia.
What explains these differences? The answer isn’t clear.
“Is it biological, or cultural?” Professor Barber asked. “Nature or nurture? At this point, we don’t know.”
Plenty of research is under way, though. Over the last five years, brain-imaging technology has made it possible to determine “what is happening in the brain just before people make financial decisions,” said Brian Knutson, a Stanford psychologist and neuroscientist.
Researchers have found that activating the nucleus accumbens — a brain region that is stimulated when you eat delicious food or look at an attractive person — can affect financial risk-taking. When young Stanford men were shown pictures of partially clothed men and women kissing, he said, that region of their brains was activated. And when they were then given financial tests, the men became more likely to “make high-risk gambles.”
Women didn’t respond much to the same pictures, he said; it’s possible the researchers didn’t test enough women or that they haven’t found the right stimuli.
Others studying the effects of hormones on financial behavior have found correlations between testosterone and risk-taking.
Alexandra Bernasek, a professor of economics at Colorado State University, said that the weight of history — enormous gender disparities in earnings, wealth, power and social status — might explain many behavioral differences. It’s also possible, she said, that evolutionary psychology accounts for some of them. Before the dawn of history, aggressive risk-taking might have given men an advantage in finding mates, she said, while women might have become more risk-averse to protect their offspring.
Science may eventually provide some answers. In the meantime, she said, it would be a mistake to “force women into riskier financial behavior” that may be inappropriate, both for them and for society at large.
“Excessive risk-taking has gotten all of us into a lot of trouble,” she said. “That’s certainly one
of the lessons of the financial crisis.”
Giving Money to Adult Children (from AARP)
Whose Money Is It, Anyway?
By: Jonathan D. Pond | Source: AARP.org | February 15, 2010
Most of us would like to pass wealth on to our heirs, be they children, nieces, nephews, or dear friends. But sometimes, life disrupts our good intentions. That's the situation for many retirees today, who continue to suffer because of the weak economy.
The stock market is still way down from its 2007 peak, and interest rates are at rock-bottom. It's no wonder that retirees in particular are worried about their financial futures. They don't have all the time younger generations have to make up for stock-market losses.
If you're concerned about your dwindling nest egg, it's time to reconsider your good intentions. It's your money, so how compelled should you feel to save it to benefit someone else? No one needs or deserves your savings more than you. If you can simply avoid becoming a financial burden on your children or other family members, you've accomplished something wonderful. And it's all the better if you can spend a bit more to have an enjoyable retirement.
Help Adult Children; Don't Enable Them
The recession has and will continue to affect vast numbers of people, including, perhaps, your adult children. Parents can often be a source of financial help to get a child over a rough patch.
Whether you are already helping or think you may want to do so in the future, keep these two matters in mind:
First, can you easily afford the outlay? I have received several disturbing e-mails from parents who don't have much money left themselves, but who still feel compelled to help their kids. While this may be a natural inclination, you don't want to impair your own financial future. As callous as it may sound, you may simply have to say that you can't afford to help.
Second, if you are providing financial assistance, don't let temporary assistance turn into an annuity for the family member. You have to draw the line somewhere; otherwise, you might end up coddling your offspring to the point where they view the periodic assistance as an entitlement.
Communicate Your Intentions
Whatever your plans, discuss them with your children or other heirs. Don't limit the discussion to money. If all you're likely to be able to give are valuables or mementos, by all means let your heirs know what items you would like them to inherit. After all, while money is nice, family heirlooms, and the memories that come with them, are priceless.
All the information presented on AARP.org is for educational and resource purposes only. We suggest that you consult your financial or tax adviser with regard to your individual situation. Use of the information contained in this Web site is at the sole choice and risk of the reader.
By: Jonathan D. Pond | Source: AARP.org | February 15, 2010
Most of us would like to pass wealth on to our heirs, be they children, nieces, nephews, or dear friends. But sometimes, life disrupts our good intentions. That's the situation for many retirees today, who continue to suffer because of the weak economy.
The stock market is still way down from its 2007 peak, and interest rates are at rock-bottom. It's no wonder that retirees in particular are worried about their financial futures. They don't have all the time younger generations have to make up for stock-market losses.
If you're concerned about your dwindling nest egg, it's time to reconsider your good intentions. It's your money, so how compelled should you feel to save it to benefit someone else? No one needs or deserves your savings more than you. If you can simply avoid becoming a financial burden on your children or other family members, you've accomplished something wonderful. And it's all the better if you can spend a bit more to have an enjoyable retirement.
Help Adult Children; Don't Enable Them
The recession has and will continue to affect vast numbers of people, including, perhaps, your adult children. Parents can often be a source of financial help to get a child over a rough patch.
Whether you are already helping or think you may want to do so in the future, keep these two matters in mind:
First, can you easily afford the outlay? I have received several disturbing e-mails from parents who don't have much money left themselves, but who still feel compelled to help their kids. While this may be a natural inclination, you don't want to impair your own financial future. As callous as it may sound, you may simply have to say that you can't afford to help.
Second, if you are providing financial assistance, don't let temporary assistance turn into an annuity for the family member. You have to draw the line somewhere; otherwise, you might end up coddling your offspring to the point where they view the periodic assistance as an entitlement.
Communicate Your Intentions
Whatever your plans, discuss them with your children or other heirs. Don't limit the discussion to money. If all you're likely to be able to give are valuables or mementos, by all means let your heirs know what items you would like them to inherit. After all, while money is nice, family heirlooms, and the memories that come with them, are priceless.
All the information presented on AARP.org is for educational and resource purposes only. We suggest that you consult your financial or tax adviser with regard to your individual situation. Use of the information contained in this Web site is at the sole choice and risk of the reader.
Clean Energy: LED lighting market growth (WSJ)
LED Growth Is Making Sapphire Supplies Look Precious
By Sari Krieger
Of DOW JONES CLEAN TECHNOLOGY INSIGHT
NEW YORK (Dow Jones)--The light-emitting diode market is heating up and expected to boom in coming years, but there is already a supply chain bottleneck in the material on which the LEDs are grown - known as a sapphire substrate - which could hinder LED industry growth.
Manufacturers of the substrates, which are synthetic versions of the precious stones, haven't been able to produce enough to keep up with the recently rising LED demand, causing sapphire prices to spike. While this shortage may slow adoption some, or may hurt LED makers, it could benefit the few suppliers that do make this material, which include Rubicon Technology Inc. (RBCN), Monocrystal PLC, Kyocera Corp. (6971.TO, KYO) and Namiki Precision Jewel Co.
Jed Dorsheimer, an analyst with Canaccord Adams Inc., warns that the shortage issue is "severe." He said that in order to meet demand, current sapphire capacity has to grow by two to three times, depending on how much the LED market expands.
When the economy started to revive last year, demand for LEDs grew quickly for use in backlighting, such as for televisions, as well as for general lighting applications. According to the Department of Energy, LEDs are 10 times more energy efficient than incandescent lights and companies are starting to take advantage of these savings. The DOE predicts that LEDs will make up 70% of the lighting market by 2020, up from less than 1% currently.
Similarly, The Freedonia Group Inc., a Cleveland-based research firm, forecasts that U.S. demand for advanced lighting products such as LEDs, compact fluorescent lamps and sodium vapor HID lamps will grow 11% per year to $6.8 billion in 2013.
Dorsheimer said rising demand already has boosted sapphire prices by 50% in the past seven months, but he doesn't expect new capacity to come online until 2011.
He said the industry average price for a two-inch sapphire wafer went from $18 in 2007 to $10 in June 2009 to $15 now. A four-inch wafer, which has been less widely produced, has held steady at $80 to $90, he said.
Bill Weissman, chief financial officer of Franklin Park, Ill.-based Rubicon, said his company saw a 7% rise in the price of its sapphire in the last quarter of 2009 and predicts another 15% rise this year. But Weissman said that the sapphire is only 8% of the material for the LED chip, so it shouldn't affect the price of the final LED too much.
Expanding sapphire production to meet the rising demand can't be done quickly, according to Tom Griffiths, president and publisher of LED industry publication Solid State Lighting Design News.
"Sapphire production is capital-equipment driven, and both investment and credit funding is still being approached cautiously, so getting the money to expand isn't as easy as it may have been in past years," he said.
"Tightened supply will increase the sapphire costs and somewhat dampen the industry growth," Griffiths said. "That will be relatively short lived, as increased profits will make capital equipment expansion easier for existing suppliers, as well as enable new entrants to show a convincing business plan to get funding for equipment."
Companies grow sapphire by heating aluminum oxide to 3,800 degrees Fahrenheit. Then LED manufacturers buy the sapphire wafers and load them into machines that lay on top of the sapphire wafer chemical layers of gallium nitrite, which is the light-emitting material. Compared with natural sapphires, the manufactured versions don't have impurities and are therefore clear.
Dorsheimer said that because companies were hesitant to expand production, waiting to see whether the increase in demand would remain, it will take a year or two for sapphire-makers to catch up with demand. Also, he said that LED-makers are asking for larger sapphire wafers, up from the traditional two-inch wafers, making production more difficult.
"New entrants are starting on four-inch and six-inch [wafers]," Dorsheimer said. "This reduces the number of sapphire suppliers as the specifications change when going to larger wafers - quality becomes more important."
Weissman said his company has ordered more machines to expand capacity. The company is building two new plants, one in Malaysia and one in Batavia, Ill., but they won't be ready until later in the year. Until Rubicon and other sapphire makers can expand, the world's sapphire supplies are tapped, Weissman said.
As well as the benefits of higher prices flowing to sapphire makers, Griffiths said Durham, N.C.-based LED-maker Cree Inc. (CREE) could gain a competitive advantage from the sapphire shortage because it uses silicon carbide as a substrate to grow LEDs.
"[Cree] can therefore presumably keep their cost-saving ramp moving unhindered," Griffiths said. "Eventually every LED manufacturer benefits as there will surely be a period of excess sapphire supply that will tank those substrate prices, at least temporarily while supplies adjust and consolidation occurs."
(Dow Jones Clean Technology Insight covers news about public and private clean-technology and alternative-energy companies.)
-By Sari Krieger, Dow Jones Clean Technology Insight; 212-416-2016; sari.krieger@dowjones.com
By Sari Krieger
Of DOW JONES CLEAN TECHNOLOGY INSIGHT
NEW YORK (Dow Jones)--The light-emitting diode market is heating up and expected to boom in coming years, but there is already a supply chain bottleneck in the material on which the LEDs are grown - known as a sapphire substrate - which could hinder LED industry growth.
Manufacturers of the substrates, which are synthetic versions of the precious stones, haven't been able to produce enough to keep up with the recently rising LED demand, causing sapphire prices to spike. While this shortage may slow adoption some, or may hurt LED makers, it could benefit the few suppliers that do make this material, which include Rubicon Technology Inc. (RBCN), Monocrystal PLC, Kyocera Corp. (6971.TO, KYO) and Namiki Precision Jewel Co.
Jed Dorsheimer, an analyst with Canaccord Adams Inc., warns that the shortage issue is "severe." He said that in order to meet demand, current sapphire capacity has to grow by two to three times, depending on how much the LED market expands.
When the economy started to revive last year, demand for LEDs grew quickly for use in backlighting, such as for televisions, as well as for general lighting applications. According to the Department of Energy, LEDs are 10 times more energy efficient than incandescent lights and companies are starting to take advantage of these savings. The DOE predicts that LEDs will make up 70% of the lighting market by 2020, up from less than 1% currently.
Similarly, The Freedonia Group Inc., a Cleveland-based research firm, forecasts that U.S. demand for advanced lighting products such as LEDs, compact fluorescent lamps and sodium vapor HID lamps will grow 11% per year to $6.8 billion in 2013.
Dorsheimer said rising demand already has boosted sapphire prices by 50% in the past seven months, but he doesn't expect new capacity to come online until 2011.
He said the industry average price for a two-inch sapphire wafer went from $18 in 2007 to $10 in June 2009 to $15 now. A four-inch wafer, which has been less widely produced, has held steady at $80 to $90, he said.
Bill Weissman, chief financial officer of Franklin Park, Ill.-based Rubicon, said his company saw a 7% rise in the price of its sapphire in the last quarter of 2009 and predicts another 15% rise this year. But Weissman said that the sapphire is only 8% of the material for the LED chip, so it shouldn't affect the price of the final LED too much.
Expanding sapphire production to meet the rising demand can't be done quickly, according to Tom Griffiths, president and publisher of LED industry publication Solid State Lighting Design News.
"Sapphire production is capital-equipment driven, and both investment and credit funding is still being approached cautiously, so getting the money to expand isn't as easy as it may have been in past years," he said.
"Tightened supply will increase the sapphire costs and somewhat dampen the industry growth," Griffiths said. "That will be relatively short lived, as increased profits will make capital equipment expansion easier for existing suppliers, as well as enable new entrants to show a convincing business plan to get funding for equipment."
Companies grow sapphire by heating aluminum oxide to 3,800 degrees Fahrenheit. Then LED manufacturers buy the sapphire wafers and load them into machines that lay on top of the sapphire wafer chemical layers of gallium nitrite, which is the light-emitting material. Compared with natural sapphires, the manufactured versions don't have impurities and are therefore clear.
Dorsheimer said that because companies were hesitant to expand production, waiting to see whether the increase in demand would remain, it will take a year or two for sapphire-makers to catch up with demand. Also, he said that LED-makers are asking for larger sapphire wafers, up from the traditional two-inch wafers, making production more difficult.
"New entrants are starting on four-inch and six-inch [wafers]," Dorsheimer said. "This reduces the number of sapphire suppliers as the specifications change when going to larger wafers - quality becomes more important."
Weissman said his company has ordered more machines to expand capacity. The company is building two new plants, one in Malaysia and one in Batavia, Ill., but they won't be ready until later in the year. Until Rubicon and other sapphire makers can expand, the world's sapphire supplies are tapped, Weissman said.
As well as the benefits of higher prices flowing to sapphire makers, Griffiths said Durham, N.C.-based LED-maker Cree Inc. (CREE) could gain a competitive advantage from the sapphire shortage because it uses silicon carbide as a substrate to grow LEDs.
"[Cree] can therefore presumably keep their cost-saving ramp moving unhindered," Griffiths said. "Eventually every LED manufacturer benefits as there will surely be a period of excess sapphire supply that will tank those substrate prices, at least temporarily while supplies adjust and consolidation occurs."
(Dow Jones Clean Technology Insight covers news about public and private clean-technology and alternative-energy companies.)
-By Sari Krieger, Dow Jones Clean Technology Insight; 212-416-2016; sari.krieger@dowjones.com
How to Put Your Business on Facebook ( Entrepreneur Magazine)
Dani Babb: The Online Professor
Group, Fan Page or Both?
Make sure your Facebook strategy is the one that works best for your business.
By Dani Babb | March 09, 2010
URL: http://www.entrepreneur.com/ebusiness/theonlineprofessor/article205406.html
In today's social media-driven marketing frenzy, online business owners are expected to be top in their game in using tools like Facebook and Twitter to their advantage. These free tools are increasing in popularity but also in saturation--many people report not reading updates anymore because of "information overload." It's important to keep information fresh, useful and purposeful while adding, if your brand allows, some humor and interesting information.
One of the most common questions I get about Facebook is, "What options should I use? Groups or regular pages?" This is a more complicated question than it seems on the surface, but important for making certain you spend your hard-earned money and precious time in areas that will give you the most bang for your buck. You can certainly have both, but it's important to know what you can and can't do with each.
First, let's take a look at a standard Facebook fan page and some of the options available to you. Pages can be viewed by unregistered users, though you will need to set your security preferences for this. A viewer does not need to be a Facebook member to view your fan page either. You can add extra applications to make your page more personal and send messages to all members using the updates feature. Pages also allow you to see statistics. You can create a corporate "person" page. There are tighter security options now in Facebook than in the past, so be sure to explore what each of those does. I recommend logging out and seeing what you can and can't view while not logged in as a registered user. Fan pages can be useful in helping the viral aspect of social media because "Joe became a fan of…" pops up on each persons wall (unless they turn it off or remove it) when they become a fan of your business.
Groups, on the other hand, allow you to send out bulk invitations (for instance, you can ask all of your friends to join the group) and any of your group members can also invite their friends. If you have "friends" on your Facebook page who are acquaintances or just share common interests this is a good way to market.
A group, however, has a limitation of 5,000 members if you wish to send a message. They are generally considered to be best for more personal interaction. I use a group, for example, to help people find online teaching jobs called "Make Money Teaching Online" where members share experiences, job tips and who's hiring. Group pages allow you to set other administrators to see who is requesting to join the group. If you post something to the group page, it will also show up on your personal wall. Some people don't like this because it ties them to their businesses, but this can be useful in creating a "person behind the online business" feeling with your customers. You have more control over participants and permissions with group memberships.
Both groups and fan pages allow you to create discussions and others to reply. Both have a wall for people to write on. Both allow you to share videos and pictures. Both require you to manually remove posts as an administrator if something does not meet your standards or purpose for the page. Both also allow you to create events.
Regardless of which one you choose (of course, you can have both), be sure to update regularly, keep your audience engaged and offer something of value. If you use your page or group purely for promotional reasons, you are far less likely to build loyalty, and there's a good chance that your members and friends won't be returning to your pages anytime soon.
Group, Fan Page or Both?
Make sure your Facebook strategy is the one that works best for your business.
By Dani Babb | March 09, 2010
URL: http://www.entrepreneur.com/ebusiness/theonlineprofessor/article205406.html
In today's social media-driven marketing frenzy, online business owners are expected to be top in their game in using tools like Facebook and Twitter to their advantage. These free tools are increasing in popularity but also in saturation--many people report not reading updates anymore because of "information overload." It's important to keep information fresh, useful and purposeful while adding, if your brand allows, some humor and interesting information.
One of the most common questions I get about Facebook is, "What options should I use? Groups or regular pages?" This is a more complicated question than it seems on the surface, but important for making certain you spend your hard-earned money and precious time in areas that will give you the most bang for your buck. You can certainly have both, but it's important to know what you can and can't do with each.
First, let's take a look at a standard Facebook fan page and some of the options available to you. Pages can be viewed by unregistered users, though you will need to set your security preferences for this. A viewer does not need to be a Facebook member to view your fan page either. You can add extra applications to make your page more personal and send messages to all members using the updates feature. Pages also allow you to see statistics. You can create a corporate "person" page. There are tighter security options now in Facebook than in the past, so be sure to explore what each of those does. I recommend logging out and seeing what you can and can't view while not logged in as a registered user. Fan pages can be useful in helping the viral aspect of social media because "Joe became a fan of…" pops up on each persons wall (unless they turn it off or remove it) when they become a fan of your business.
Groups, on the other hand, allow you to send out bulk invitations (for instance, you can ask all of your friends to join the group) and any of your group members can also invite their friends. If you have "friends" on your Facebook page who are acquaintances or just share common interests this is a good way to market.
A group, however, has a limitation of 5,000 members if you wish to send a message. They are generally considered to be best for more personal interaction. I use a group, for example, to help people find online teaching jobs called "Make Money Teaching Online" where members share experiences, job tips and who's hiring. Group pages allow you to set other administrators to see who is requesting to join the group. If you post something to the group page, it will also show up on your personal wall. Some people don't like this because it ties them to their businesses, but this can be useful in creating a "person behind the online business" feeling with your customers. You have more control over participants and permissions with group memberships.
Both groups and fan pages allow you to create discussions and others to reply. Both have a wall for people to write on. Both allow you to share videos and pictures. Both require you to manually remove posts as an administrator if something does not meet your standards or purpose for the page. Both also allow you to create events.
Regardless of which one you choose (of course, you can have both), be sure to update regularly, keep your audience engaged and offer something of value. If you use your page or group purely for promotional reasons, you are far less likely to build loyalty, and there's a good chance that your members and friends won't be returning to your pages anytime soon.
Florida Dirt Bonds Default (Daily Business Review, Bloomberg)
"Florida community development district bonds defaulting faster than any U.S. tax-exempt debt"
Daily Business Review: News Item
Posted using ShareThis
Daily Business Review: News Item
Posted using ShareThis
Getting the Most out of Social Security
The Social Security claiming guide
By Steven Sass, Alicia H. Munnell, and Andrew Eschtruth
© 2009, by Trustees of Boston College, Center for Financial Literacy
By Steven Sass, Alicia H. Munnell, and Andrew Eschtruth
© 2009, by Trustees of Boston College, Center for Financial Literacy
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