Protecting Personally Identifiable Information

There a lots of attempts to steal people personally identifiable information (PII) and use it.   I have not subscribed to any protection services, even when it's provided for no charge due to a data breach. I feel that taking good precautions will be enough protection.  Here's what I do to protect information.

• Shred any papers that may have PII.  Bank statements, brokerage statement, pre qualification letters  with QR codes, 1099s, copies of tax returns,  W-2s and cancelled checks.
• Don't share SSN at doctor's or dentist's offices.   It is not required and you can choose to leave it blank.   In fact, you can decline sharing SSN for many applications.
• Do not send PII over e-mail.  It is not secure.
• Only use secure electronic systems to send personally identifiable information to appropriate organizations.
• Cut up expired credit cars and membership cards.
• Do not give information over the phone to unknown callers that claim to be bank, credit card, IRS, Social Security or Medicare representatives.  Call back a confirmed number, from internet or mail, to verify unknown callers.
• Check credit card statements and bank statements for unknown activities.
• Periodically, check information at credit bureaus.

Finally, I usually am on the side of being cautious rather than assume the situation is safe.  Better to not give out or shred the information than have it obtained by unscrupulous people.

For more on The Practice of Personal Finance , check back every Wednesday  for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2025 Achievement Catalyst, LLC

Shredding Personally Identifiable Information

When I was younger I threw all my statements and prequalified financial offers (credit cards, banks, insurance, etc.) in the weekly trash.  Never had an issue with identity theft.

Nowadays, I think it is prudent to shred anything that can be used to "steal" one's identity.  This includes:

• Financial Statements:  Bank, Brokerage, Credit Card, W-2, 1099, Mortgage, Student Loan and more
• Prequalified anything:   Credit Card, Insurance, Membership that have QR codes
• Old tax return data:  I shred after 7 years.
• Expired Credit or Debit Cards
• Paper Bills:  Medical, Utility

Shredding takes me about an hour for a month's amount paperwork.  

In some cases, asking for e-documents is a secure route to take, which is how my bank bill payment system operates.  I choose electronic for some bank and brokerage statement, but I still choose paper for those that I want for tax records.

I probably shred more than I need to do.  However, better safer than sorry.  

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial nor security advice. Please consult a professional advisor.

Copyright © 2025 Achievement Catalyst, LLC

Tail Risks Growing

The S&P closed at an all time high on Friday.  

However, there are a growing number of tail risks that could cause the market to decline significantly:

• Suez Canal blockage
• Margin Calls, e.g. Achegos Capital this week
• SPACs
• Interest rate increase
• Higher tax rates
• Increasing Government Deficit
• New COVID risks
• Unknowns

Stock will keep going up, until they don't.   It's time to be caution:  take some profits, raise cash and be ready to buy low.

For more on New Beginnings, check back Sundays for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2021 Achievement Catalyst, LLC

Reducing Our Investment Risk in Retirement

For me, a big risk factor in retirement is volatility of investments.  I learned this the hard way in 08/09 when our retirement investments were reduced by over 50%.  For the next few years, it wasn't clear that my retirement was sustainable.   Fortunately, the market and my company stock recovered such that most of the losses were eliminated. 

However, there is a big difference in dealing with downside volatility at 49, which is when I retired, and in my 60s.  There is less time to recover and less options for recovery.   If needed, I could have gone back to work in my 50s.    Returning to work is a much less likely option in my 60s, 70s, and 80s.

Being a financial geek, I decided to test a scenario of keeping 2/3 of our retirement funds in cash, at 0% yield,  and calculating if the combination of  future social security payments, current dividend income, current rental income, future RMD withdrawals,  and current cash was sufficient to cover our annual expenses for 20 years, assuming 3% inflation.  The answer was yes. 

Since I was conservative, e.g. no growth in cash funds and 3% inflation, I feel confident that we can keep a significant amount of cash to minimize the negative impact of volatility without jeopardizing our retirement lifestyle.  I plan to work this scenario with our financial advisor to significant reduce our downside risk during the times of significant volatility.

For more on  Reaping the Rewards, check back Fridays for a new segment.

This is not financial, retirement, nor investment advice. Please consult a professional advisor.

Copyright © 2020 Achievement Catalyst, LLC

Cavalcade of Risk #159 - Early Edition

Welcome to the 159th edition of the Cavalcade of Risk.   This will be My Wealth Builder's ninth time hosting this esteemed Carnival.  Cav editions that were previously hosted by My Wealth Builder include #150 Sesquicentennial Edition, #107, #103 Risk Management with the Stars Edition, #94 Alert Level Edition, #76, #64, #38 and #19 Valentine's Day Edition.

As the name indicates, this Carnival is about risk - e.g. insurance, health, financial, and other types. Thank you to all bloggers who submitted a post to this Cavalcade. I enjoyed reading each one. While every post was a great article, I selected only those primarily related to risk.

Here are the articles of the 159th edition of the Cavalcade of Risk:

Is it better to risk the loss or buy some insurance?  FMF presents Insurance You Need and Don't Need posted at Free Money Finance, saying, "The Wall Street Journal lists insurance you don't need, some you might consider, and policies you must have. The list begins with the types of insurance you can skip."

Sometimes it may be better to accept the risk of loss.  Teacher Man offers his opinion on Is the Extended Warranty Worth It? at My University Money, saying, "What you are being sold using catchy terms like “layers of protection” is an extended warranty. These products differ widely in what they cover, but the basic idea is that for a yearly fee, the place where you are buying the product will fix your purchase if it breaks or malfunctions. As with most financial products, the devil in the details, but the vast majority of the time, you should politely decline the offer."

Here's a profession where insurance may be very important.  What if your daily commute to get to your workspace entailed climbing 1500 foot towers – sounds like something you might want to be trained for, right? At Workers’ Comp Insider , Julie Ferguson talks about the risks involved in working for the fast-growth, high pressure cell tower industry in The high price for fast phones: Cell tower deaths

But what about when you can't get insurance you need and want? Jeff Rose presents Declined Life Insurance - Now What? posted at Life Insurance By Jeff, saying "Have you thought that you were super fit and that you would get approved instantly only to have a curve ball thrown at you to realize either something came back on your medical exam or you found out that you’re uninsurable? If this is the case I want to give you a few tips on how you can get approve for life insurance even if you’ve been declined."

Even when there is insurance, getting back to normal is a challenge. In Getting Your Life Back in Order After a Fire Or Other Disaster Roger at The Amateur Financier learns that having insurance is only one part of recovering from a disaster.  He offers  a guide to how you can recover from (and prepare for) fires or other disasters, minimizing the trouble that they cause in your life."

Surprise, health care insurance costs are going up. Jason Shafrin presents Healthcare Costs to Rise by over 7 percent in 2013 posted at Healthcare Economist, saying "The Healthcare Economist reviews the latest trends in health insurance premiums."

Here is one government solution to reduce health care costs. Louise presents Colorado Governor Committed To Improving the Health of Colorado Residents posted at Colorado Health Insurance Insider, saying " "Hickenlooper addressed an international conference of wellness experts yesterday in Aspen, and said that although he has concerns about the downsides of becoming a “nanny state”, he believes we need to take some significant measures in order to improve the overall health of the Colorado population – if for no other reason than the significant economic impact of poor health and obesity. Even though Colorado is still the leanest state in the US, the percentage of obese adults has been steadily increasing over the past two decades, and it climbed above 20% last year for the first time."

Perhaps, this is another government solution :-). Henry Stern, LUTCF, CBC presents Helmets? We don't need no steenkin' helmets! posted at InsureBlog, saying "Motorcycle riding is inherently risky to begin with, but what about going bare-headed? InsureBlog has the latest on a new Michigan law that seems to encourage that."

This concludes this edition of the Cavalcade of Risk.  The 160th edition will be hosted by Jay Norris at Colorado Health Insurance Insider.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.
This is not financial or risk management advice. Please consult a professional advisor.

Copyright © 2012 Achievement Catalyst, LLC

Cavalcade of Risk Sesquicentennial

Welcome to the 150th edition of the Cavalcade of Risk. As the name indicates, this Carnival is about risk - e.g. insurance, health, financial, and other types. Thank you to all bloggers who submitted a post to this Cavalcade. I enjoyed reading each one. While every post was a great article, I selected only those primarily related to risk.

Barbara Friedberg presents WHAT'S THE BEST AGE AT WHICH TO EXPERIENCE A STOCK MARKET CRASH posted at Barbara Friedberg Personal Finance. A fascinating look at the impact on your portfolio of a stock market crash. The risk varies depending upon the age at which you experience the crash. Rob Bennett wrote this thought provoking guest article.

Emily presents The Costa Concordia Tragedy and the Need for Travel Insurance posted at PT Money Personal Finance. Emily uses the cruise ship tragedy as a springboard for a discussion on the necessity of travel insurance.

Thomas Jensen presents Top 10 Myths About Life Insurance posted at Penge Snak!. Life insurance is among the most misunderstood financial concepts out there. But when you break it down to its components, it’s not that complicated at all: Life insurance just replaces the future income of the people in the risk pool who don’t make it to life expectancy. They do that by taking their premiums and saving it on their behalf – paying claims and investing the difference. This post explores the top ten myths about life insurance.

Henry Stern, LUTCF, CBC presents Can you hear the risk? posted at InsureBlog. InsureBlog's Henry Stern explains why the risk of getting hit by a car -- as a pedestrian wearing ear buds -- may be overblown.

Echo presents Health And Dental Insurance: Not Really Insurance posted at Boomer & Echo. Our health and dental insurance plans aren't really insurance - they're just benefits. Insurance is intended to cover catastrophic financial loss.

Jared Wade presents The Risks of Social Media: Developing a Social Media Crisis Response Plan posted at Risk Management Monitor. Social Media Influence highlights the recent bad press Carnival Cruises and McDonalds have received. Fortunately, they also have some advice for companies who suffer such a fate. Enter the social media crisis response plan. They have created a flow chart to help guide your decision making after the worst occurs.

Jaan Sidorov presents A Thousand Dollars Says Dr. Ezekiel Emanuel Is Wrong About The Long Term Prospects Of ACOs posted at The Disease Management Care Blog. Dr. Jaan Sidorov wants to bet former White House golden boy Ezekiel Emanuel MD that he is wrong about the future of U.S. health insurance. Writing in the New York Times, Dr. Emanuel predicts "accountable care organizations" will drive health insurers out of business. Dr. Sidorov draws on the published medical evidence and demolishes all of Dr. Emanuel's assumptions. While Dr. Sidorov wonders why his challenge hasn't been answered, he's not surprised that the White House is in such deep trouble over health reform.... not with advisors like Dr. Emanuel!

Jason Shafrin presents Does Obamacare Limit Profits for Health Insurance Companies in Your State? posted at Healthcare Economist. One of the provisions in the Patient Protection and Affordable Care Act (a.k.a ACA, a.k.a. Health Reform, a.k.a. Obamacare) is that it limits the profits of health insurance companies. Even though this is a national law, it may not be applied in your state. The Healthcare Economist investigates.

Nancy Germond presents Beware of Pumping and Pedaling posted at Insurance Writer. If you knew what some women are doing behind the wheel, you'd be very, very scared.

Louise Norris presents Retiree-Only Health Insurance Plans and the ACA posted at Colorado Health Insurance Insider. I don’t know what percentage of the population is covered by retiree-only health plans, but it seems that group might be more likely than others to have children who are young adults. I’m sure Sandy and her husband aren’t the only parents to have found out that the ACA doesn’t apply to their retiree-only health plan.

This concludes the 150th edition of the Cavalcade of Risk. The next edition will be hosted at Insurance Regulatory Law.

For more on The Practice of Personal Finance , check back every Wednesday for a new segment.

This is not financial or risk advice. Please consult a professional advisor.

Copyright © 2012 Achievement Catalyst, LLC

Other Potentially Risky Holdings: Gift Cards, Traveler's Checks, and Municipal Bonds

"It ain't over 'til it's over." Yogi Berra

Although the government intervention is having a positive impact, I continue to take steps to minimize exposure to potential risks caused by the credit crisis.

Recently, we learned that supposedly safe investments such as money market funds can be risky. This got me thinking that there are probably other money equivalents that are no longer as safe during this financial crisis. Here's my short list so far:

1. Gift cards. Bankruptcy of a company can significant reduce or eliminate the value of a gift card, as demonstrated earlier this year with the Sharper Image. Holders of gift card are unsecured debt holders, who get funds before shareholders, but after secured debt holders. Usually, unsecured debt holders get little or no money from a bankrupt company.
   
   Currently, we have about $75 of gift cards from a local restaurant and about $20 from a book store. We'll be spending them before the end of the year.



2. Traveler's checks. We use American Express Traveler's checks during vacations and other long trips. Although advertised as safer than cash, I suspect the checks would be worthless if American Express were go bankrupt.
   
   Currently, we have several hundred dollars of leftover checks from vacation. I think it's time to cash them.



3. Municipal Bonds. With declining real estate values and higher unemployment, I expect that the revenue of municipalities will decline significantly, leading some to go into default.
   
   Currently, we have municipal bond money market funds and several individual municipal bonds. We'll be moving the money market funds into a bank money market fund that is paying about 3.5%.
   
   We will continue to hold the bonds we have since most mature from 2008 to 2010. The bonds are all insured against default, although the bond insurers may be solvent enough to cover the defaults. At this point, I don't plan to buy any more individual municipal bonds.

In the end, I expect that these holdings will prove to be relatively safe. However, just in case the credit crisis worsens, I want to minimize potential losses if possible.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Managing Investment Risk

Wealthtrack had a discussion about investment risk on the 5/30/08 show (transcript available free for two weeks). The three panel guests, Charles Ellis, Robert Litterman, and Jean-Marie Eveillard, shared some interesting perspectives on risk, which are summarized below:

The panelists discussed three types of investment risk:

Market risk - This is the fluctuation of the total stock market. According to Robert Litterman, investors should determine the maximum loss one is willing to accept. Is it 10, 20 or 50%. Once this number is identified, one can determine an appropriate allocation to stocks and minimizes market risk.

From 1950 to 2007, the yearly stock market return has ranged from a -29.6% in 1974 to 42.3% in 1954. Thus, to cap annual stock market losses at 15%, one should not be more than 50% invested in stocks.

On the other hand, Charles Ellis believes that market risk should be irrelevant to investors that have a 30, 40 or 50 year time horizon. Historically, during that time frame, there is no risk that the market will be down.

Business risk - This is related to whether a particular company will do well or not. For individual stock pickers, this is the most important risk to manage. Understanding a business, its strengths and weaknesses, and the probability of doing well is the most important part of choosing a specific stock. A good analysis of a business will be rewarded with excellent returns when investing in the stock.

Valuation risk - This is related to overpaying for a stock when buying it. However, according to Jean-Marie Eveillard , if one has analyzed the business well, valuation risk will be minimized, since the value will rise in the long term.

Actively managed investing is a zero sum game. The sum total return of all investors is the market return. A small percentage managers will outperform the market, but this will be offset by a larger percentage managers under perform the market. For most investors, buying a global diversified index is the best investing approach.

After watching this show and summarizing the key points, I am considering modifying my investment strategies. Historically, we have been invested in individual stocks and fixed income, such as bonds and CDs. Currently, with the exception of our daughter's 529 plan, we have very little invested in index funds or index ETFs. Many others, such as Vanguard, have long made a case of low cost index funds and the show's discussion on risk have provided me additional insight on how index funds (and good asset allocation) can help minimize risk. Also, I think index funds/ETFs may help simplify managing our investments. While I will always allocate a portion of our funds to individual stocks, I expect to have a larger part of our portfolio in index funds/ETFs in the future.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Properly Assessing Risk

The recent bubbles and crashes of the stock market, real estate, and securitized debt obligations have led me to the following observation: estimates of the future are often grounded in the present. For example, when real estate prices increased between 50 to 150% from 2003 to 2005 in some cities, people projected those price increases past 2005, and acted accordingly. The same is probably true for the 18% return of the S&P from 1990 to 2000. Unfortunately, this error in estimating the future may cause major issues in assessing risk for the following reasons:

People may underestimate risk when investments are going up. In the late nineties, people were making a killing in the stock market. A couple of colleagues shared that they made $60,000 in one day, or over a quarter million in a year. My guess is that these kind of results were not that uncommon.

Of course, there were pundits calling for a catastrophe, but the average person wasn't. In fact, I remember people talking about taking a second mortgage to buy tech stocks. There were few conversations on whether the market could continue rising and I don't recall any conversations on the possibility of a significant decline in the market, other than for Y2K reasons.

People may overestimate risk when investments are going down. Currently, there are still a lot of people that wary about investing in the stock market. Either they had large losses from 2000 - 2002, or they experienced losses in the recent decline. In addition, the S&P 500 index returns have been flat for the past nine years.

The classic phenomenon is when investors sell their stock holding near the bottom of a decline and just before the market resumes an upward trend.

To help avoid incorrectly assessing risk, a concept I like to use is regression to the mean, which proposes that returns will tend deliver the long term average, in the absence of an causal change. In the case of the stock market, with a long term return of 10%, I believe the last nine years may indicate that the stock market is due for a new upward trend. However, for housing , with a long term return of about 6%, I believe there may be several more years of declines or no increases for some cities, especially ones that had large returns in 2003-2005.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial, real estate or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Three Events That Can Cause Wealth Destruction

Building wealth is often a long process, easily taking several decades to achieve one's goal. The destruction of wealth can happen much faster, through poor judgement, or bad risk management. However, there are sometimes uncontrollable events that can also lead to wealth destruction. Here are three types of events that have potential to cause wealth destruction:

Death - This is not surprising, especially if the person is the only or major earner in the household. Having the household income reduced by over 50% can become a major issue, especially if there is significant debt. However, death can sometimes be an issue even if it happens to the secondary wage earner.

Here is what we did to protect against death being a financial issue. While I was working, we had sufficient term life insurance on me to pay off our debt, which was only our home mortgage. In addition, I purchased survivor income insurance, which would cover the different between Social Security survivor benefits and my take home pay. Fortunately, we never needed to use the survivor income or life insurance benefits.

Disability - Not being able to work due to medical reasons can be another wealth destruction event. Many people may not have enough funds to cover the 90 days before Social Security disability benefits take effect. In addition, Social Security disability benefits will not cover all lost income.

Our solution was to carry disability insurance while I was working. Now that I retired in my forties, we do not carry additional disability insurance, since sickness won't reduce our income. However, both of us carry long term care insurance our health situation requires nursing home care.

Divorce - Wealth can sometimes be cut in half through divorce. In many cases, retirement account contributions and property obtained while married will be split equally in a divorce. I saw several colleagues have their retirement accounts and marital assets cut in half when a divorce happened. How divorce hits your 401k at MSN.com summarizes how this event can affect your retirement account.

There is no monetary insurance against this type event. Good judgement is the main defense, i.e. marry the right person the first time:-)

For the first two events of death and disability, proper insurance may help protect one's wealth. For divorce, there are not many solutions, except for not getting divorced :-)

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Reviewing Our Risk

"I have a million dollars in the stock market, because if I lose a million dollars, I don’t personally care." Suze Orman

Unlike Suze, I can't afford to lose a million dollars :-) Therefore, I like to give due consideration to my investments. Not only do I think about the potential gains, but I also think about the potential losses. This approach has theoretically kept me from scoring big wins (e.g. tech gains in the 90s), but, more often than not, it has probably kept me from experiencing big losses. The following three risks help me remember to consider potential losses:

Downside Risk. I feel it is good practice to consider the potential downside of any investment I make. For me 20% is a reasonable downside possibility. If a greater loss is possible, I try to avoid the investment. Of course, one never knows the true possibility until it happens. However, it's easy to check the historical results to learn what to avoid. I've had several stocks lose between 50 to 100%, permanently. These were typically stocks of turnaround companies or "unproven" companies with a potentially great idea. I've learned to avoid these types of investments. While I may miss a future 100 fold gain, I am likely avoid many more significant losses :-)

In the short term, I think the downside risk of most stocks is very high and, therefore, am not making any new stock purchases.

Concentration Risk. It's been said that wealth is built through concentration and preserved through diversification. Concentration is how Warren Buffet, Bill Gates and Michael Dell amassed their wealth. However, concentration can be a two edged sword, leading to wealth destruction as was the case for Enron employees and, perhaps now, Bear Stearns employees, who were heavily invested in their company's stock.

In my case, the company from which I retired also invested our retirement accounts primarily in company stock. While working there, I had limited diversification choices and chose to put some fund in a money market account. When I retired, 44% of our total savings were in company stock. My plan was to diversify the funds in the company retirement account by selling some stock through a covered call strategy. Unfortunately, the market drop in late 2007 and early 2008 caused the stock to fall below the call strike prices. At this time, my company stock is 45% of our total savings.

This post is a good reminder that our original diversification plan didn't execute as planned over the last few months. Over the rest of 2008, I'd like to reduce the amount of company stock to 33% of our savings. While 33% is still high, it will be a good start.

Perfect Storm Risk. The current U.S. economic crisis is what I would call perfect storm risk. The combination of low interest rates and collateralized debt obligations led to a housing bubble which burst and caused the subprime mortgage and foreclosure crisis. That in turn has caused the failure or imminent demise of some mortgage companies, bond insurers and investment banks. Any one of the events by themselves would have been easily survivable. However, the combination of all these events have made the economic situation very challenging.

My main concern at this point are the municipal bonds that I purchased in 2005. While these were all insured, Aaa bonds when purchased, the insurance companies and the municipality default risk is now higher due to the credit crisis. Fortunately, the bonds are only 4% of our investments began maturing at the end of 2007, with 85% maturing by 2010.

While I was comfortable with our investment situation six months ago, I am now more concerned with each of the risk areas due to the current economic situation. We have addressed the downside risk and the perfect storm risk by not making any new equity or bond investments. However, we will need to implement a new plan to reduce our allocation in company stock.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Hunkering Down Financially

It's time for us to hunker down. It doesn't appear the economy or stock market will recover for a while, perhaps not until 2009. When times appear tough financially, I like to do an inventory of our situation and make changes to protect ourselves. Here are the three areas on which I focus:

Investing: Cash Is King - As I have written before, I have a relatively conservative investment profile, with a relatively large percentage in cash and fixed income. I will continue to maintain this proportion for the total portfolio and have moved our short term expense needs into 100% cash and fixed income. Since we have retired, we have been working toward reallocating our equity portion from my company's stock to more diversified equity portfolio. We will continue to sell our company stock, but will wait until better market conditions to reinvest the proceeds.

We had begun to invest in CDs and bonds in mid 2006. In hindsight, we were lucky and locked in some good rates through 2012. Several CDs were callable due to having interest rates above 5%. Unfortunately, with the decline of interest rates, these CDs have been or will be called. For now, we will keep the funds from called CDs in cash.

Spending: Buy Only What We Need - To note, we are frugal spenders, which doesn't leave much room for cutting in this area. For example, we don't have cable, gym memberships or a cell phone for the adults in the family. (I still don't want a cell phone :-) Our daily expenses have been stable for the past two years. There are only a couple major expenses that we expect in the next couple years - a new roof and a new driveway. These will be big expenses, but we have been planning for them. Our cars should be good for at least another 3 to 5 years.

At this point, we do not plan to reduce spending. However, we do not plan to increase our spending either.

Risk: Be Prudent - The bursting of the tech stock, real estate, and securitized debt bubbles have made me more sensitized to issues of underestimating downside risk. In these three cases, many people thought the they wouldn't lose money because others were consistently making money.

To me, the issue isn't the level of risk, but the amount funds put at high risk. I like to keep the percent invested in high risk investments at less that 5%, preferably closer to 1-3%. For us, examples high risk would be buying foreclosed real estate, buying stock IPOs, or starting a new business. We would not avoid such investments, but we would want to limit the maximum loss to no more than 5% of our savings.

At this time, we only expect to make a few minor adjustments to protect our financial situation. While we are not nervous enough yet to make major changes, I expect there is a reasonable chance that we may need consider more extensive changes in the future, e.g. reversing retirement and going back to full time work. OK, hopefully not that extensive :-)

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Wii Sports: Appeal and Risk To Older Players

Since its introduction, the Wii has much broader appeal than just to the young male gamer. This Chicago Tribune article shares that the Wii is attracting older players, even those in retirement homes. The active use of the Wii controller, versus thumb controls, has provided a new outlet for physical activity and participation across generations. The increased appeal has been positive since the Wii is providing physical activity for participants.

On the other hand, the Wii may be providing too much activity for those not accustomed to a wide range of physical motions. Recently, one of the members of our tennis league dropped out for a season, due to an injury from Wii boxing. Apparently, the intensity of Wii boxing caused a shoulder injury and has prevented him from playing tennis this year.

The Wall Street Journal acknowledged the potential injury issues in an article A Wii Workout: When Video Games Hurt. There is even a collection of anecdotal incidents posted on this blog, where the majority of injuries I saw resulted from striking low ceilings or each other.

Overall, the articles recognize the benefits of additional physical activity from playing games on the Wii. Perhaps older players also should take the caution to Bii Careful :-)

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial or health advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Risk Management Applied To Personal Finance

With the recent CDO (collateralized debt obligations) crisis, the has been a number of stories about risk management and financial risk management. For some, the concept of using risk management occurs after the issue has happened. However, risk management is best done before the event occurs, in order to prevent significant problems. Here are some of the ways I apply risk management to our personal finances.

1. Avoid high risk - We tend to avoid investments that tout big gains that are low probability or have potential losses that are high probability. Some examples of low probability big gain investments include penny stocks, put or call options, "guaranteed 20% returns, " or "earn $5000 per week doing _____ from home." These examples also tend to be high probability for losing all or part of one's money.
   
   We also avoid exotic debt, such as adjusted rate mortgages, which may risk one's home based on the rise of short term interest rates.



2. Mitigate necessary risk - We try to reduce the impact of stock market declines by putting part of our funds in bonds and CDs. We buy bonds and CDs that have maturities between one and five years to help maintain more stable interest rate returns Finally, within both our stock and fixed income portfolios, we use diversification to improve our return and reduce risk.



3. Insure against debilitating risk - For low probability, but potentially catastrophic events, we use insurance to protect us against the risk. We used to spend about 3.4% of our pre-retirement income on health, life, disability, property, car and long term care insurance. In retirement, we have dropped life and disability, but will be spending about 4.7% of our retirement income on the other insurance coverages.

This approach to risk helps maintain steady growth for our overall family wealth. While we won't have phenomenal gains in any one year, we hopefully won't have any catastrophic losses either.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial or risk management advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Cavalcade of Risk # 38

Welcome to the Cavalcade of Risk #38. As the name indicates, this Carnival is about risk - e.g. insurance, financial, health, personal, and other types. While every post submitted was a great article, I only included those submissions that had actual (or implied;-) content on risk.

My thanks to Hank Stern for the opportunity to host the Cavalcade of Risk a second time. Besides being fun and educational, hosting a Cavalcade leads to a nice traffic increase for the week:-) It's easy to become a host. Just contact Hank at the Cavalcade of Risk site or send him an e-mail.

And now for the Cavalcade. For your convenience, I have grouped the articles into five categories of risk: Insurance, Health, Business, Investment and Personal. Within each category, the submissions are listed in the order received. If more than one submission was made by a blog, I chose to include the latest submission.

Insurance

Super Saver submits Collision and Comprehensive Car Insurance - When I Consider Dropping Them posted at My Wealth Builder with his guidelines on when the premium cost may be higher than the risk of loss.

Similarly, Phillip Brewer writes When to drop collision coverage on your car posted at Wise Bread, which offers a stepwise approach to eventually assuming the entire risk of collision damage.

George Wallace presents When the Night Wind Howls in the Chimney Cowls posted at Declarations and Exclusions, presenting risk management options for residents who choose to live in wildfire regions.

Paidtwice presents High Deductible Health Insurance vs A Traditional Plan - For Us posted at I've Paid For This Twice Already..., commenting "When faced with a choice between a high deductible insurance plan and a traditional plan, it pays to crunch the numbers and see what really will work the best for you. This is our family's situation and what we decided. Feel free to weigh in with your experiences or comments! Is the risk worth the potential reward?"

Spencer Hill shares When Does a Term Life Policy Have Value? posted at Hill's Personal Finance, noting "A secondary market exists to sell that unwanted term policy to institutional investors. The process is called a life settlement. " This market may offer a way for business to reduce the cost of providing life insurance for key executives.

Bob Vineyard, CLU presents I Am Not a Carpenter posted at InsureBlog, saying, "A major part of risk management is simply knowing what you don't know, and not being afraid to look for answers. Here's a recent experience with someone who didn't understand this."

Jay Norris submits Protecting The Insured posted at Colorado Health Insurance Insider, saying, "A lot of our clients are worried about the risks of forgetting something on their health insurance application, and for good reason."

Jon Coppelman presents Risk Transfer and Furniture: Betting Against the Red Sox posted at Workers Comp Insider. "Back in March, a Boston-area furniture store offered to refund their customer's payments if the Red Sox won the World Series. They lost the bet - or did they? It appears that they purchased insurance for what may well total $30 million in losses. The Insider speculates on the fan affiliation of the insurance underwriters."

Health

Zagreus Ammon presents Risk and Primary Care Income posted at The Physician Executive, observes that primary physicians may assume less risk for each patient, but assume greater aggregate risk if one normalizes for the number of patients. He asks if compensation is proportional to risk assumption, are primary physicians being under compensated?

David E. Williams presents Interview with Steve Harden, President of LifeWings (transcript) posted at Health Business Blog, which shares an interview transcript on "Applying the lessons of aviation to reduce risk in the hospital."

Lowering the Risk of Alzheimer’s Disease posted at Health Articles reports, "According to experts like Dr. Grace Petot, a professor at Case Western Reserve University, people can change their lifestyles to lower their risk. Boost your fruit and vegetable intake for a start."

Business

Noric Dilanchian writes A Whirlpool of Legal Risk at Dianchian Lawyers & Consultants, submitting "In Queensland, Australia a software company did not like the Whirlpool forum discussion about its product. Whirlpool is an online forum for geeks. The company sued Whirlpool. The court of public opinion throttled the company back into silence. There's Web 2.0 lessons here for companies on when not to sue. There's also a checklist of hints on how forum owners can minimise the risk of potential legal action."

Charles H. Green presents The Subprime Mortgage Crisis Viewed in the 12-Year Rear View Mirror posted at Trust Matters. "It took a long time mess up the mortgage market as badly as it has been. Charles takes a long look back to 1995, traces what went wrong" and why risk management failed to protect the parties involved.

Investment

Leon Gettler presents Fear and loathing on Wall Street posted at Sox First, commenting, "Less than a day after the Fed cut interest rates to stave off recession, and Wall Street is in the grip of fear and loathing. It means volatile times ahead."

Silicon Valley Blogger contemplates Deciding To Sell Or Keep Your Employee Stock Options posted at The Digerati Life, offering a strategy to manage the risk inherent with estimating the future value of stock options.

Numerian presents As Wall Street Awaits its Destruction posted at The Agonist. "Is this financial Armageddon? It’s at least as serious a financial crisis as has ever been seen in anyone’s lifetime. The vast credit creation, money making machine that has been Wall Street finance in the past two decades has been shut down. Other parts of the financial industry, like commercial paper and now overnight cash deposits, are being affected."

Logan Flatt, CFA says "Growth Investing" Nothing More Than Rank Speculation posted at PowerWealth.com. "Thanks to decades of promulgation by the financial services industry, it is now common for many people not unlike Mr. Authers to mistakenly use the terms 'value' and 'growth' to describe two contrasting styles of investing. However, there are not two styles of investing. Instead, there is investing and there is speculation. "

FIRE Finance shows analysis on Investing - The Mistake Of Timing The Market posted at FIRE Finance. The data show that market timing significantly under perform the indices making it a risky proposition for most investors.

Personal

Lisa Emrich presents New Freedom Initiative -- Medicaid, Employment, and Affordable Housing for Disabled Persons posted at Brass and Ivory, writes about a risk management decision she must make to maximize benefit from a Virginia disabilities program.

Pedestrian (and cyclist?) risk increases during clock roll back posted at Bike Hugger reports that a study shows "pedestrians are 3 times more likely struck and killed after the switch to Standard Time."

This concludes the 38th edition of the Cavalcade of Risk. To become a future host, please contact Hank Stern at the Cavalcade of Risk site or send him an e-mail.

Photo Credit: morgueFile.com, Clara Natoli

This is not financial or risk management advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Afraid Of Investing In The Stock Market?

I've noticed a some bloggers are losing their confidence when it comes to investing in the stock market. Even people who strongly advocated buying and holding index funds are now pulling out of the market themselves. While they may feel better in the short term, it is likely their portfolios will significantly underperform in the long term.

Here's the data from Dalbar, an investment research firm. They found that market timers in mutual funds lost an average 3.29% per year, resulting in an average investor annual return of 3.51% during a time when the S&P index returned 12.98% annualized. A net difference of -16.49% is quite a big penalty for trying to time the market.

However, I understand fully that staying invested is an intellectual and psychological decision. In the past, emotion usually prevailed, causing me to sell instead of staying invested. Here are some ways I have tried to conquer the emotional element:

Allocated a portion I felt comfortable to risk. I confess that I have not been fully invested in the stock market. Historically, most of the accounts we control (taxable and tax exempt) have been in fixed income investments, with a maximum of 30% allocated to stocks. Thus, a minority portion of my savings would participate in the stock market. During the great tech bull market, my overall portfolio didn't grow exponentially like most of my peers. However during the tech crash of 2000 to 2002, I didn't lose as much money either, which made me feel good.

The other portion I was willing to risk was the company retirement account since 100% was invested in company stock (unnamed to maintain my anonymity:-) for most of my career. Fortunately for us, my company stock has returned about 16% annually for the past 20 years, outperforming the 9.5% return by the S&P 500 index during the same time.

Invested a small portion in quality companies with potential for exponential growth. When I first started investing, I tried to win big with with every stock pick. I would try to find out of favor stocks that I thought were under valued. More often than not, I was wrong would lose money. In the eighties, I did not to invest in "darling" stocks such as Dell and Microsoft. As it turned out, $1000 invested in Dell or Microsoft would return $386,250 and $246,700 respectively by May, 2007. So now I try to find "high potential" stocks in which to invest a small portion of my portfolio. I have chosen three stocks for this category, Google, Amazon and General Electric and made them part of my personal core stock holdings.

I won't sell these stocks unless there is a significant deterioration of the company fundamentals. For example, I have stayed invested these stocks despite the volatility of that past few months.

Hired a good professional wealth manager. As noted above, the returns from my company retirement plan were exceptional because I was required to stay 100% invested in our company stock. Therefore, about three years ago, I hired a professional manager for 1/3 of our personal accounts. He designed an investment strategy and has kept the funds 95% invested in the stock market during that time. My running joke with my manager is "Keep me invested when I bail out in my own accounts." Although I do pay a asset based fee, the returns have been comparable to the S&P 500 index and higher than my fixed income returns, after fees.

For reference, I found an advisor who is committed to wealth preservation and growth strategies, and part of an advisor team that had a track record of over 20 years. I didn't want someone who was successful primarily due to a narrow sector (e.g. energy, gold or tech) focus. My main expectation is that our advisor will keep us invested in a divesified portfolio so that our returns, at a minimum, match the S&P 500 index over the long term.

Although I haven't done the calculation, I expect that the returns outside of my company retirement account have been below those of the S&P 500 index. However, I am not disappointed since the level of risk was acceptable and returns were offset by the company retirement plan which beat the market.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

Photo Credit: morgueFile.com, Jane M. Sawyer

This is not financial or investing advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Financial Risk With Innovative Investments - Buyer Beware

For many years, the majority of financial risk for lending money was owned by banks and the government. Loans to businesses and individuals were made by banks, and it was in their best interest to find good customers who were able to make payments. Individual depositors at banks were relatively well protected through the government via FDIC insurance.

Recently, the risk has been shifting from banks and the government to individuals, via innovative financial instruments. This has been most evident in the sub prime mortgage crisis. It appears that mortgage brokers are now "investment bankers" for individual investors by packaging loans into collateralized debt obligations (CDO) that are sold. If the mortgagee defaults on the loan, the investors in the CDOs will bear the brunt of the loss of payments. While CDOs were sold as "safe" investments (i.e. AAA rated bonds), recent events have shown that it was was mostly safe for those that issued them.

Prosper.com is another example of an innovative investment where risk has been transferred from banks and government to individuals. In the past, experienced bank loan officers would evaluate applicants before loaning the banks money. In Prosper.com transactions, many inexperienced individuals are now evaluating applicants and make loans. The early results have shown this transferal of risk hasn't been an issue. However, should there be a significant increase in defaults, lenders in Prosper.com will experience similar liquidity and valuation issues as the investors in CDOs.

As always, higher returns generally are not a free lunch. While CDOs and Prosper.com loans provide higher returns, they are also subject to a higher default rate. In boom times, the true default rate may masked by economic prosperity and appear attractively low. However, should there be a leveling out or decline in the economy, an increase in the default rates will show the unexpectedly high risk individual investors took on for these types of investments.

For more on Reflections and Musings, check back every Saturday for a new segment.

Photo Credit: morgueFile.com, Stuart Whitmore

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Five Ways To Lose Money From Investing

There a lots of ways to lose money from investing. More ways than there are to make money :-) Here are five ways of losing money which I have seen happen (either to me or people I know.):

Buy a hot tip. Especially in rapidly rising markets, everyone seems to have a recommendation, based on unique or proprietary knowledge. Friends, colleagues, neighbors, and acquaintances will have stories of making thousands of dollars in a short time (days or weeks) on stock XYZ.

I confess I have purchased hot tips about ten times, with dismal results.

Buy an IPO. Initial public offerings (IPOs) have been occurring at a rate of 200 -400 per year. 37% fail in the first ten years. Also, many do not make money for the post-IPO shareholder, because the price declines or stays flat after the IPO. Although there are great examples of making money with IPOs, (e.g. GOOG, ICE, BIDU), more often than not, people are lucky to recover their investment.

A good strategy is to wait one to six months after the IPO to determine performance. I was able to buy ICE at a lower price at one month. However, I paid 5 times the IPO price for GOOG at one year after the IPO. Both stock gained at least 25% over the purchase price.

Buy when everyone claims to be making BIG money. When your neighbors and colleagues tell you about how they have made lots of in the stock market, there is always an urge to participate. I recall a colleague telling me how he made $60,000 in one day on a tech stock, since it rose 60 points in one day. Luckily, I wasn't tempted and the tech bubble burst within a year.

Currently, there is a lot of skepticism about the market. So I am not too worried about irrational exuberance at this time.

Use only high risk strategies. Buying penny stocks, trading derivatives, and buying/selling futures are examples of high return for high risk. Often these types of investments results in significant losses for the novice investor.

I have not traded in penny stocks or futures. I use a small amount of my portfolio to trade derivatives, primarily call and put options.

Use systems that claim to have big returns. In respected publications, such as the Wall Street Journal, I see advertising about systems that report returns of 20%, 100% or even a 1000%. They often include testimonials from "normal" people who have made those types of returns from the system.

I've never purchased one of these systems. If it is such a good system, why they are selling it to me for $99.95, with a money back guarantee? There's a reason they are selling the system instead of using the system to make their money :-)

Investing can be an expensive education. Avoiding these higher loss probability strategies can make investing more profitable.

For more on The Practice of Personal Finance , check back every day Wednesday for a new segment.

This is not financial or investing advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Estimating How Long One Will Live

One of the critical elements of retiring planning is knowing the day one will die:-) With that information, a financial advisor can develop a plan that allows one to save the right amount while working, live comfortably in retirement and then die broke.

Seriously, since none of us can predict the future, the best one can do is estimate. I recently found this life expectancy estimator. It uses a number of answers to various risk factors to estimate one's current life expectancy. The risk factors are:

Date of birth

Childhood location

Gender

Health Consciousness

Grandparents age of death

Brain use

Exercise

Diet

Smoking

Pets

Stress management

Transportation to work

Various health factors (weight, blood pressure, etc.)

Wear seat belt

Own gun

Average sleep per night

Happiness level

Provide answers to each risk factor and get one's life expectancy.

Based on my answers, my current life expectancy is 73. With a few improvements in exercise, weight and cholesterol, I can increase it to 83.

For more on Reaping the Rewards, check back every Friday for a new segment.
Photo Credit: morgueFile.com, Kenn Kiser

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Risk Allocation In A Wealth Portfolio

Since my entire retirement income will initially be derived from my retirement savings, I have been learning more about how to manage investment risk. I was already aware portfolio risk management for stocks and asset allocation. My financial advisor shared another approach which is summarized in the Beyond Markowitz: A Comprehensive Wealth Allocation Framework for Individual Investors by Ashvin B. Chhabra in THE JOURNAL OF WEALTH MANAGEMENT, vol. 7, no. 4, Spring 2005, which discusses the use of Risk Allocation as a strategy to manage wealth. (The full article can be downloaded at the link.) A major conclusion of this article is that, for the individual investor, risk allocation should precede asset allocation.

While the author agrees with Modern Portfolio Theory (MPT) on equity allocation, he proposes that MPT is necessary but not sufficient part of Wealth Allocation. Wealth allocation should also include a low risk/low return bucket (e.g. home, cash) and a high risk/high return bucket (e.g. investment real estate.) A diversified stock portfolio would only be part of the mid risk/mid return bucket.

Here's how Chhabra allocates a wealth portfolio by risk buckets:

	Allocation By Risk Bucket
	Personal Risk	Market Risk	Aspirational Risk
Purpose	Maintain basic standard of living	Maintain lifestyle	Enhance lifestyle
Asset Allocation	Cash Home Home Mortgage CDs and Bonds Insurance Human Capital (Income from job)	Equities Fixed income Cash - For opportunistic investments	Alternative investments - hedge funds Investment real estate Small business Concentrated stock position or stock options
Recommended Percentage	40%	50%	10%
My Percentage	36%	11%	53%

This article and analysis was eye opening for me. My percentages are skewed towards the aspirational risk, primarily due to my retirement account being invested in company stock. (For reference, company stock is the only option available for my employer contributions.) This analysis also helps me understand why I have been more comfortable with low risk investments in my personal accounts - i.e. because I am currently over invested in the aspirational risk category. So the 47% percent of investments that I directly control are split 77% cash equivalents and home, and 23% in the stock market.

Also, as I think about a retirement investment strategy, I will need to consciously decrease my concentration in company stock and increase my exposure to the overall stock market.

For more on Strategies and Plans Ideas , check back every Monday for a new segment.

Photo Credit: morgueFile.com, Scott M. Liddell

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC