Friday, October 15, 2010
How well has your financial advisor (and his or her firm/employer) explained this to you:
Make sure that your financial advisor properly explains the affect that a secular bear market, deleveraging, debt default, and asset-price deflation will have on your investments.
In the meantime, I hope you will find the articles below to be an informative read.
Beware those who think the worst is past
By Carmen Reinhart and Vincent Reinhart
http://www.ft.com/cms/s/0/7b9bbc72-b460-11df-8208-00144feabdc0.html
Published: August 30 2010 20:23 Last updated: August 30 2010 20:23
The landscape of Jackson Hole, Wyoming, where central bankers gathered at their annual conference last week, is spectacular and forbidding. Jagged peaks and vast empty spaces stretch across the horizon. For the attendees, however, it was both a vista and a metaphor. Having lived through a precipitous global economic drop, they now must forecast how steep or flat will be the incline of recovery.
Ben Bernanke, chairman of the Federal Reserve, painted a sober but reassuring picture of US prospects. The basis for sustained recovery is in place, and canny Fed officials are now alive to the dangers of both deflation and inflation. Similarly Jean Claude Trichet, head of the European Central Bank, spoke about how the dust had begun to settle on the crisis. Policymakers and financial markets seem to be looking at what comes next.
Our research found real per capita gross domestic product growth tends to be much lower during the decade following crises. Unemployment rates are higher, with the most extreme increases in the most advanced economies that experienced a crisis. In 10 of the 15 episodes we studied, unemployment never fell back to its pre-crisis level, not in the following decade nor right up to the end of 2009.
It gets worse. Where house price data are available, 90 per cent of the observations over the decade after a crisis are below their level the year before the crisis. Median prices are 15 to 20 per cent lower too, with cumulative declines as large as 55 per cent. Credit is also a problem. It expands rapidly before crises, but post-crash the ratio of credit to GDP declines by an amount comparable to the pre-crisis surge. However, this deleveraging is often delayed and protracted.
Our review of the historical record, therefore, strongly supports the view that large destabilising economic events produce big changes in long-term indicators, well after the upheaval of the crisis. Up to now we have been traversing the tracks of prior crises. But if we continue as others have before, the need to deleverage will dampen employment and growth for some time to come.
Part of these changed prospects after a crisis simply reflects the correction of expectations. During episodes of financial euphoria – from the diving bell, through the steam engine and thereafter – the old rules seem not to apply. Lenders provide easy credit, investors bid up asset prices, and businesses invest unwisely. Spending advances rapidly, and debt builds up. Yet recent discussions about the “new normal” leave the misleading impression that the pre-crisis environment was “normal”.
Perceptions aside, at Jackson Hole, policymakers debated whether further measures to stimulate demand were needed. History shows that today’s problems could certainly materialise as a consequence of the failure to provide sufficient economic stimulus. In particular, a collapse in financial intermediation can reduce the availability of loans. This lack of access to credit, in turn, makes households and business less able to spend, lengthening and deepening the downturn. In such circumstances slow growth often becomes a self-fulfilling prophecy produced by timid authorities, who neither supported spending nor dealt with the capital-adequacy problems at large banks.
However, it is also possible that economic contraction and a slow recovery can dent aggregate supply, otherwise known as an economy’s ability to produce efficiently. In this scenario, much less discussed in current debates, a sustained stretch of below-trend investment, alongside the depreciation of human capital that comes from high unemployment, hits the level and growth rate of potential output. That is, the unemployment rate stays high because it has been high.
Importantly, this reduction in supply can also be caused by policy. In adverse economic circumstances, political leaders grasp for quick fixes that impair, not improve, the situation. The list of unfortunate interventions includes not recognising bank losses, as well as restricting trade (both domestically and internationally) and credit. In these cases the effects of crises might be persistent because we make them so.
A prudent post-crisis policy, therefore, must be alert to threats both to supply and demand, not demand alone. But the bigger worry remains the assumption that dust has begun to settle; that the shock from the crisis is temporary, when it is likely to be deep and persistent. Today, as in the past, over-optimistic fiscal authorities are over-estimating tax revenues. Financial supervisors want to believe that troubled banks are temporarily illiquid, not permanently insolvent. And central bankers like Mr Bernanke may soon attempt to restore employment to unattainably high levels. If they do so, the road to recovery will be long, and the lessons of history will have been ignored once more.
Carmen Reinhart is a professor at the University of Maryland and Vincent Reinhart is resident scholar at the American Enterprise Institute. This is based on a paper presented at the Jackson Hole Symposium.
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IMF admits that the West is stuck in near depression
If you strip away the political correctness, Chapter Three of the IMF's World Economic Outlook more or less condemns Southern Europe to death by slow suffocation and leaves little doubt that fiscal tightening will trap North Europe, Britain and America in slump for a long time.
By Ambrose Evans-Pritchard
Published: 8:00PM BST 03 Oct 2010
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8039789/IMF-admits-that-the-West-is-stuck-in-near-depression.html
The IMF report – "Will It Hurt? Macroeconomic Effects of Fiscal Consolidation" – implicitly argues that austerity will do more damage than so far admitted.
Normally, tightening of 1pc of GDP in one country leads to a 0.5pc loss of growth after two years. It is another story when half the globe is in trouble and tightening in lockstep. Lost growth would be double if interest rates are already zero, and if everybody cuts spending at once.
"Not all countries can reduce the value of their currency and increase net exports at the same time," it said. Nobel economist Joe Stiglitz goes further, warning that damn may break altogether in parts of Europe, setting off a "death spiral".
The Fund said damage also doubles for states that cannot cut rates or devalue – think Spain, Portugal, Ireland, Greece, and Italy, all trapped in EMU at overvalued exchange rates.
"A fall in the value of the currency plays a key role in softening the impact. The result is consistent with standard Mundell-Fleming theory that fiscal multipliers are larger in economies with fixed exchange rate regimes." Exactly.
Let us avoid the crude claim that spending cuts in a slump are wicked or self-defeating. Britain did exactly that after leaving the Gold Standard in 1931, and the ERM in 1992, both times with success. A liberated Bank of England was able to cut interest rates. Sterling fell. The key point is whether you can offset the budget cuts.
But by the same token, it is fallacious to cite the austerity cures of Canada, and Scandinavia in the 1990s – as the European Central Bank does – as evidence that budget cuts pave the way for recovery. These countries were able export to a booming world. They could lower interest rates, and were small enough to carry out `beggar-thy-neighbour' devaluations without attracting much notice. We were not then in our New World Order of "currency wars".
Be that as it may, it is clear that Southern Europe will not recover for a long time. Portuguese premier Jose Socrates has just unveiled his latest austerity package. He has capitulated on wage cuts. There will be a rise in VAT from 21pc to 23pc, and a freeze in pensions and projects. The trade unions have called a general strike for next month.
Mr Socrates has already lost his socialist majority, leaking part of his base to the hard-Left Bloco. He must rely on conservative acquiescence – not yet forthcoming. Citigroup said the fiscal squeeze will be 3pc of GDP next year. So under the IMF's schema, this implies a 3pc loss in growth. Since there wasn't any growth to speak off, this means contraction.
Spain had a general strike last week. Elena Salgado, the defiant finance minister, refused to blink. "Economic policy will be maintained," she said. There will be another bitter budget in 2011, cutting ministry spending by 16pc.
Mrs Salgado has ruled out any risk of a double-dip. But the Bank of Spain fears the economy may contract in the third quarter.
The lesson of the 1930s is that politics can turn ugly as slumps drag into a third year, and voters lose faith in the promised recovery. Unemployment is already 20pc in Spain. If Mrs Salgado is wrong, Spanish society will face a stress test.
We are seeing a pattern – first in Ireland, now in Greece and Portugal – where cuts are failing to close the deficit as fast as hoped. Austerity itself is eroding tax revenues. Countries are chasing their own tail.
The rest of EMU is not going to help. France and Italy are cutting 1.6pc GDP next year. The German squeeze starts in earnest in 2011.
Given the risks, you would expect the ECB to stand by with monetary stimulus. But no, while the central banks of the US, the UK, and Japan are worried enough to mull a fresh blast of money, Frankfurt is talking up its exit strategy. It risks repeating the error of July 2008 when it raised rates in the teeth of the crisis.
The ECB is winding down its lending facilities for eurozone banks, regardless of the danger for Spanish, Portuguese, Irish, and Greek banks that have borrowed €362bn, or the danger for their governments. These banks have used the money to buy state bonds, playing the internal "carry trade" for extra yield. In other words, the ECB is chipping at the prop that holds up Southern Europe.
One has to conclude that the ECB is washing its hands of the PIGS, dumping the problem onto the fiscal authorities through the EU's €440bn rescue fund. That is courting fate.
Who believes that the EMU Alpinistas roped together on the North Face of the Eiger are strong enough to hold the rope if one after another loses its freezing grip on the ice?
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How Canada is among most indebted nations in the world
Michael Babad Columnist profile E-mail
Globe and Mail Update
Published Thursday, Sep. 23, 2010 10:35AM EDT
Canada has been winning praise throughout the industrialized world for Ottawa's fiscal position, a relatively low level of government debt-to-GDP when compared to its peers. But, Scotia Capital notes today, add in private debt and it doesn't look so good.
"Just as the federal government vacated the debt markets from the mid-1990s onward, Canadian households, businesses and some provinces all too eagerly stepped up to the plate to fill the space," said economists Derek Holt and Grocia Djeric. "Canada's combined household debt and business debt readings relative to GDP give us among the most indebted private sectors anywhere using this World Economic Forum measure of private debt extended by lenders to households and businesses."
As their chart above illustrates, Canada is "pushing toward the outer limit," in company with the likes of the United States, Britain and Spain when you look at both public and private gross debt.
"Connect the dots between the U.S., U.K., Canada, France, Italy and Japan on the chart, and being near the resulting ring isn't terribly appealing to us," the Scotia economists said in a research note. "Canada has a lot of company in this zone, but the view that the country is vastly superior on debt exposures that itself stems from focusing just on the federal government or just net debt of all governments combined is incorrect."
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BRICs Oppose U.S. on Currency Controls, Russia Says
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2010/10/08/bloomberg1376-L9YJCN1A74E901-4OEP03FF07FAPU57753DM73NJS.DTL
Oct. 8 (Bloomberg) -- The BRIC countries are united in opposing U.S. efforts to weaken or eliminate mechanisms to control currency fluctuations, Russia's Finance Ministry said.
Brazil, Russia, India and China will put up "strong resistance" to attempts to make a "harsh appraisal" of currency controls at the annual meeting of the International Monetary Fund and World Bank this week in Washington, Deputy Finance Minister Dmitry Pankin told reporters late yesterday.
The BRIC countries "have agreed on a position that exchange rates aren't themselves a problem," Pankin said. "Rather they are a consequence of deeper processes, such as tendencies to save, to invest, of the investment climate."
U.S. Treasury Secretary Timothy F. Geithner said this week that large economies undervaluing their currencies may accelerate inflation, create asset bubbles and restrict growth. China is the biggest target for criticism after limiting the yuan's rise to about 2 percent against the dollar since a June pledge to make the currency more flexible.
The yuan was little changed today at 6.6712 per dollar at 1:29 p.m. Moscow time. Before relaxing the peg, China held its currency at about 6.83 per dollar for two years to shield its exporters from the global crisis.
'Currency War'
Japan last month sold the yen for the first time in six years to spur exports and economic growth, joining countries across Asia and Latin America that have tempered gains in their currencies against the dollar. Brazil's Finance Minister Guido Mantega warned Sept. 27 of a "currency war" and said that his government will buy all "excess dollars" in the market to curb the real's appreciation.
Brazil is among the countries struggling with its currency's appreciation, as investors pump record levels of cash into emerging markets since EPFR Global started tracking the data in 1995. Indian Finance Minister Pranab Mukherjee said yesterday it's the duty of every central bank to watch inflows and intervene "as and when it is necessary."
Capital "fluctuations" may also pose a risk for Russia, Pankin said.
"I don't believe in a weak currency as a good way of having growth," Alexei Ulyukayev, first deputy chairman of Bank Rossii, said in an interview in Moscow on Oct. 5.
'Excessive Volatility'
The ruble depreciated the most in three weeks versus the dollar as oil declined. The Russian currency weakened 1.1 percent to 30.0100 per dollar at 2:27 p.m. in Moscow.
Russia's central bank has pledged to shift its policy regime to target inflation and make the ruble a free-floating currency. Bank Rossii currently buys and sells currency on the market to steer the ruble's value against a basket of euros and dollars to smooth "excessive volatility" in the exchange rate.
The central bank has "made serious progress in liberalizing the exchange rate," selling $1.3 billion in September compared with interventions earlier this year that exceeded $10 billion a month, Ulyukayev said.
The central bank's shift to a free-floating ruble is a "dangerous policy for the economy," because a more flexible exchange rate may undercut Russia's competitiveness, Deputy Economy Minister Andrei Klepach said Oct. 6. "Russia isn't fully ready" for the free-float regime now, he said.
Sharp currency-exchange "fluctuations" act as a hurdle to growth, Pankin said. "From the point of view of any economic process or an investment project, it's impossible to work in a situation when the exchange rate jumps 20 percent in four months," he said.
"A free-floating exchange rate isn't itself a cure for all ills," Pankin said.
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Is the Fed playing with fire?
Federal Reserve Chairman Ben Bernanke called the last round of asset purchases an "effective program."
By Chris Isidore, senior writerOctober 5, 2010: 4:05 PM ET
http://money.cnn.com/2010/10/05/news/economy/Fed_quantitative_easing/index.htm
New York (CNNMoney.com) -- The Federal Reserve is about to throw some more fuel on the fire it has been stoking for more than two years.
But the expected move to pump more cash into the system might not do much good at this point, and the economy could get burned in the process.
The central bank has pumped about $2 trillion into the economy since the recession began in September 2008, in a process known as quantitative easing -- massive purchases of financial assets, like mortgages and Treasurys, designed to encourage spending through lower interest rates.
Now, as the Fed prepares for a two day meeting the first week of November, top officials are sending clear signals that more purchases are on the way.
"Further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident," said William Dudley, president of the Federal Reserve Bank of New York said last week.
In remarks Monday, Chairman Ben Bernanke said of the possibility of future purchases, "I do think they have the ability to ease financial conditions."
But further Fed action comes with a number of risks, and not everyone is eager to see another round of quantitative easing. Here are the dangers:
Another bubble. The idea behind asset purchases is to flood the economy with money, which would lower interest rates and spur more lending and spending.
But new asset bubbles could form if the Fed doesn't start backing away from its policy of easy money -- often thought to be the source of the housing bubble which caused the recession in the first place.
Kansas City Fed President Thomas Hoenig has been warning of asset bubbles since early this year, and consistently voting against additional asset purchases and low interest rates.
And there are already troubling signs of possible new bubbles, like increases in the values of various assets from Treasurys to gold to other commodities.
A falling dollar. At the last Fed meeting policymakers said prices were too low, and signaled they were ready to take action if necessary.
That caused a drop in the value of the dollar, as investors fear the currency will lose value in the future. That day, the dollar fell about 1% against the euro, and almost 4% more since then.
If more confidence is lost, a downward spiral for the greenback could raise prices by making the cost of various commodities and imports, such as food and oil, more expensive for Americans.
That could also drive up interest rates, as overseas investors financing U.S. government debt would demand higher rates to compensate for expected declines in the dollar.
Higher rates could lead to a host of problems, like making business and consumer loans more expensive. And it would hurt the value of the Fed's huge asset holdings.
"When the Fed buys long-term government debt from the private market, it shifts interest rate risk from bondholders to taxpayers," Minneapolis Fed President Narayana Kocherlakota warned last week.
It won't work. There are fears that rushing to buy additional assets will do little to spur hiring or spending in an economy already awash in excess cash, one in which nervous consumers are saving more and paying down debt.
"Asset purchases in our current economic environment can do little if anything to speed up the return to full employment," Philadelphia Fed President Charles Plosser said in a speech last week. "Because I see little gain at this point, and some costs, I would prefer not to engage in further asset purchases at this time."
Many economists echo Plosser's doubts about the Fed being able to jumpstart the economy with more money.
"I think the impact [of additional purchase] will be minimal," said Bernard Baumohl, executive director of the Economic Outlook Group.
Even if asset purchases lower interest rates, Baumhohl said, banks are still reluctant to lend and both businesses and consumers are still too nervous to take on more debt.
So lowering rates feeds the risk of inflation down the road without solving the problem today.
"We are following policies that unless changed will eventually lead to lots of inflation down the road," said Warren Buffett at Fortune's Most Powerful Women Summit Tuesday. "We have started down a path you don't want to go down."
The risk of doing nothing. While the economy remains fragile, sitting on the sidelines isn't a safe option either.
There are growing concerns of a double-dip recession or a deflationary spiral that could hurt economic growth for years to come. A recent poll of top economists by CNNMoney found nearly twice as many worried about deflation than a return of inflation.
With inflation currently near zero, many fear that a downward spiral in prices is a serious threat.
"Once deflation gets going, it's very hard to stop," said James Hamilton, economics professor at the University of California at San Diego.
Even having very low inflation can cause problems for the economy, he said. "As long as we have inflation this low, people have an incentive to hoard cash rather than putting it to work constructively."
He argues the weak economy warrants immediate action, despite the risks, and supports another round of asset purchases.
"We have to balance those worries about negative consequences with worries the economy faces right now."
The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author.
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Monday, May 3, 2010
Big Fat Legal Disclaimer!!!
The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author.
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What you need to know:
Your current financial advisor (and/or their employer) collects commissions and trailer fees for the mutual funds they "manage" in your account.
If they didn't do their homework, can you sue your financial advisor for professional negligence in a court of law? (especially if they didn't fully explain to you the risks of investing in a secular bear market.)
The question is, are they paid to sell you investment products, or are they paid to provide you with "unbiased", "professional" advice?
It is not you who pays them, so they are not working for you. At least, that may well be their legal defence should investors ever decide to take them to court for the poor investment advice they have received.
If that is the case, is it not their responsibility to inform you up front that they are actually working as salespeople on behalf of the mutual fund companies?
P.S. I think you should run as fast as you can from anyone who continues to pass off the following as professional financial advice:
"Don't worry, the government won't ever let the "free-market" collapse."
P.P.S. In the last ten years, the government has twice brought interest rates down to virtually zero in order to force savers back into equity investments (and real estate) to re-inflate asset values.
The last economic boom was supported solely by a housing bubble, but that bubble has now popped.
After the crash of 2008, have those that could borrow at virtually zero interest rates already done so and used the borrowed money to buy equities (and thereby brought the stock markets roaring back in just a year's time)?
Are those buyers now just looking for an opportunity to sell, just as middle-class investors once again gain enough confidence to start jumping back into the markets (at exactly the wrong time)?
Remember, most investment advisors are paid to sell you product. They are salespeople first and foremost. They are not fiduciaries. Might they care about what is in their best financial interest more than what is in your best interest?
“It is difficult to get a man to understand something when his salary depends upon his not understanding it.” - Upton Sinclair
____________________________________________________________________
What you need to know:
Your current financial advisor (and/or their employer) collects commissions and trailer fees for the mutual funds they "manage" in your account.
If they didn't do their homework, can you sue your financial advisor for professional negligence in a court of law? (especially if they didn't fully explain to you the risks of investing in a secular bear market.)
The question is, are they paid to sell you investment products, or are they paid to provide you with "unbiased", "professional" advice?
It is not you who pays them, so they are not working for you. At least, that may well be their legal defence should investors ever decide to take them to court for the poor investment advice they have received.
If that is the case, is it not their responsibility to inform you up front that they are actually working as salespeople on behalf of the mutual fund companies?
P.S. I think you should run as fast as you can from anyone who continues to pass off the following as professional financial advice:
"Don't worry, the government won't ever let the "free-market" collapse."
P.P.S. In the last ten years, the government has twice brought interest rates down to virtually zero in order to force savers back into equity investments (and real estate) to re-inflate asset values.
The last economic boom was supported solely by a housing bubble, but that bubble has now popped.
After the crash of 2008, have those that could borrow at virtually zero interest rates already done so and used the borrowed money to buy equities (and thereby brought the stock markets roaring back in just a year's time)?
Are those buyers now just looking for an opportunity to sell, just as middle-class investors once again gain enough confidence to start jumping back into the markets (at exactly the wrong time)?
Remember, most investment advisors are paid to sell you product. They are salespeople first and foremost. They are not fiduciaries. Might they care about what is in their best financial interest more than what is in your best interest?
“It is difficult to get a man to understand something when his salary depends upon his not understanding it.” - Upton Sinclair
Tuesday, October 13, 2009
Nobody Saw It Coming? Really?
There were in fact many who did try to warn investors of the risks of staying invested in the markets in 2008 (including yours truly).
A Dozen Reasons To Worry - Gary Shilling - Forbes - January 2007
Sell! Global financial problems will get worse. - September 2007
Are we headed for an epic bear market? - Satyajit Das - September 2007
Danger: Steep drop ahead - Jeremy Grantham - Fortune - September 2007
A Market Correction is Coming, this Time for Real - Financial Times - March 2007
HSBC says super-rich clients moving into cash - Reuters - September 2, 2008
The Perfect Storm - Financial Design - 2008
Understanding Secular Bear Markets - Journal of Financial Planning - March 2006
The Market Timing Question - Timing the market to lower risk - Don Wilson - 2007
Greenspan: Fed is not a ‘magical piggy bank’ - Associated Press - September 4, 2008
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So, why did so many financial advisors not see it coming?
The first question to ask yourself might be: Who actually pays my advisor's salary/commissions/trailer fees and provides them with their research?
The second question to ask your advisor should be: What type of independent research do they do on an ongoing basis to actually earn their fees? If the only advice an advisor ever gives is to buy-and-hold, is that advice really worth the high fees investors pay?
You don't pay these fees directly (they are paid by the mutual fund companies), but these fees can still have a significant negative effect, not only on your returns, but also on the type of advice you receive.
Buy-and-hold works in a secular bull market. It fails terribly in a secular bear market. Good advisors are paid to know how to recognize these long-term trends, and position their clients accordingly. Each of these 10 to 15 year trends requires a different strategy if an advisor is to help his clients successfully grow and preserve their wealth.
Just as you are unlikely to find a realtor that will tell you that it is not a good time to buy a house, there are few financial advisors that will tell you that it is not a good time to buy mutual funds.
Giving investors the right advice in a secular bear market is less lucrative for any advisor whose income is commission/sales based.
It's not good for business to tell clients that their two options in a secular bear market are to either, 1) just buy GICs for the next 5, 10, or 15 years, and wait until the bubble pops (secular bear market runs it course), or 2) with the help of their advisor, try to time the market by actually buying low and SELLING high (this requires active trading; a risk-tolerance level many investors are not comfortable with).
For an advisor, it may be a lot easier to just guide/drag clients through a secular bear market on the hope that the markets will quickly come back and move ever higher (or the fear that if they sell, they might miss out).
If investors are not comfortable with trying to time the market, then what this should be telling them about themselves is that their risk tolerance is really much more suited towards GIC's during a secular bear market.
Remember, history has shown, a secular bear market usually lasts at least 10 to 15 years, during which the overall trend in the market is downwards, or flat at best.
In a secular bear market, buy-and-hold is not a good strategy, especially with all the fees that must be paid to "manage" your life's savings (in addition to the fact that markets are likely to be flat or lower over a long period of time).
It is important for investors to know that even if they lose over 50% of their life savings, their advisor may still "earn" more by keeping clients invested in the markets compared to the commissions he or she would be paid had they recommended that their clients consider GICs(with the goal being to help clients just preserve their wealth while they wait for better buying opportunities)!
Currently, the investment industry really is stacked up against the average investor because, as well as the advisor does financially, for keeping you invested in the markets at all times, their employer (brokerage firm, bank, credit union, or life insurance company) and the "professionals" that manage your money (who on average do no better than the market as a whole), make off like bandits (for themselves). Financially, for themselves, they do better than most people could possibly even fathom. Sadly, the investor, the one who actually took all the risk, sees none of the reward that should rightfully be his.
The average investor takes all the risk and gets none of the reward: Any earnings above GIC rates are eaten up through the different hidden fees.
When the market crashes, advisors will always fall back on:
1)nobody saw it coming
2)this is a great buying opportunity
(why didn't they call you and let you when it was a great selling opportunity?)
Please, get better informed.
A Dozen Reasons To Worry - Gary Shilling - Forbes - January 2007
Sell! Global financial problems will get worse. - September 2007
Are we headed for an epic bear market? - Satyajit Das - September 2007
Danger: Steep drop ahead - Jeremy Grantham - Fortune - September 2007
A Market Correction is Coming, this Time for Real - Financial Times - March 2007
HSBC says super-rich clients moving into cash - Reuters - September 2, 2008
The Perfect Storm - Financial Design - 2008
Understanding Secular Bear Markets - Journal of Financial Planning - March 2006
The Market Timing Question - Timing the market to lower risk - Don Wilson - 2007
Greenspan: Fed is not a ‘magical piggy bank’ - Associated Press - September 4, 2008
___________________________________________________________________
So, why did so many financial advisors not see it coming?
The first question to ask yourself might be: Who actually pays my advisor's salary/commissions/trailer fees and provides them with their research?
The second question to ask your advisor should be: What type of independent research do they do on an ongoing basis to actually earn their fees? If the only advice an advisor ever gives is to buy-and-hold, is that advice really worth the high fees investors pay?
You don't pay these fees directly (they are paid by the mutual fund companies), but these fees can still have a significant negative effect, not only on your returns, but also on the type of advice you receive.
Buy-and-hold works in a secular bull market. It fails terribly in a secular bear market. Good advisors are paid to know how to recognize these long-term trends, and position their clients accordingly. Each of these 10 to 15 year trends requires a different strategy if an advisor is to help his clients successfully grow and preserve their wealth.
Just as you are unlikely to find a realtor that will tell you that it is not a good time to buy a house, there are few financial advisors that will tell you that it is not a good time to buy mutual funds.
Giving investors the right advice in a secular bear market is less lucrative for any advisor whose income is commission/sales based.
It's not good for business to tell clients that their two options in a secular bear market are to either, 1) just buy GICs for the next 5, 10, or 15 years, and wait until the bubble pops (secular bear market runs it course), or 2) with the help of their advisor, try to time the market by actually buying low and SELLING high (this requires active trading; a risk-tolerance level many investors are not comfortable with).
For an advisor, it may be a lot easier to just guide/drag clients through a secular bear market on the hope that the markets will quickly come back and move ever higher (or the fear that if they sell, they might miss out).
If investors are not comfortable with trying to time the market, then what this should be telling them about themselves is that their risk tolerance is really much more suited towards GIC's during a secular bear market.
Remember, history has shown, a secular bear market usually lasts at least 10 to 15 years, during which the overall trend in the market is downwards, or flat at best.
In a secular bear market, buy-and-hold is not a good strategy, especially with all the fees that must be paid to "manage" your life's savings (in addition to the fact that markets are likely to be flat or lower over a long period of time).
It is important for investors to know that even if they lose over 50% of their life savings, their advisor may still "earn" more by keeping clients invested in the markets compared to the commissions he or she would be paid had they recommended that their clients consider GICs(with the goal being to help clients just preserve their wealth while they wait for better buying opportunities)!
Currently, the investment industry really is stacked up against the average investor because, as well as the advisor does financially, for keeping you invested in the markets at all times, their employer (brokerage firm, bank, credit union, or life insurance company) and the "professionals" that manage your money (who on average do no better than the market as a whole), make off like bandits (for themselves). Financially, for themselves, they do better than most people could possibly even fathom. Sadly, the investor, the one who actually took all the risk, sees none of the reward that should rightfully be his.
The average investor takes all the risk and gets none of the reward: Any earnings above GIC rates are eaten up through the different hidden fees.
When the market crashes, advisors will always fall back on:
1)nobody saw it coming
2)this is a great buying opportunity
(why didn't they call you and let you when it was a great selling opportunity?)
Please, get better informed.
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The posts on this website are long, detailed, and some may be dry and difficult to get through (and for that I apologize). But, that being said, how many tens-of-thousands of dollars do your investments have to drop in value before you see the value in becoming a more informed investor? Again, I apologize for being so blunt, but please, understand that the things I say, I say only because I really do care.
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What The Average Middle-Class Investor Needs To Know About Secular Bear Markets:
1. Secular Bear Markets can destroy the life savings of buy-and-hold investors.
2. Secular Bear Markets are very real! This is when, for 10 to 20 years (2000 - 20??), markets will have amazing runs and even more amazing crashes, but the overall trend is downward.
The last secular bear market was from 1966 to 1982, so very few people remember.
From 1982 to 2000 we had the greatest secular bull market in history, and this is the only type of market most investors have ever known. And the bubble was re-inflated one last time as low interest rates encouraged people to borrow and spend beyond their means, and bid up asset prices, in what they believed was going to be a never-ending virtuous cycle of forever rising asset values and wages. What most people ignored was the fact that this entire cycle was financed by immense leverage/debt that now has to be paid back, or written off.
When one person's bad debts are written off, the other side of this entry must be that somebody else's savings must also get wiped out! This is a deleveraging process, and it has a very deflationary affect on asset prices. But, it takes a long time for asset prices to bottom out, because, those with savings continue to jump in and buy at what they think are incredibly low prices (at least that is what the last 25 years of history have taught them - but 25 years does not a true history make). So, this process will still take at least a few more years to finally play itself out.
We will hit bottom only when the average middle-class investor is fed up with owning these assets (real estate and stocks) and just wants to get rid of them at any price because they have been money losers (as they drop in value) and have had a negative cashflow, for such a long period of time that investors sees no hope of things ever getting better. Before this happens, we will first have to go through the reality that many people will be forced to sell due to job loss (just to make ends meet, for as long as they can).
That is when we will hit bottom. That is the capitulation that we have to wait for to mark the bottom of a secular bear market and the beginning of a new secular bull market. The fact that this seems impossible to believe for most people, is proof positive, as far as I am concerned, that we have not yet hit rock bottom. People have not yet lost hope when it comes to their investments. That will still take a bit more time.
There are no painless shortcuts this time around that can get us through the necessary pain that we must bear as deleveraging runs it natural course and cleanses a system that is currently very toxic due to the amount of bad debt in it and must still be wiped out through bankruptcy.
I believe, the reality is, much wealth is going to be lost chasing returns as advisors, unfortunately will be successful in convincing their clients to ride out the market to the very bottom. Those willing to take minimal risk and receive minimal reward while they wait this process out, will be generously rewarded. But, it will take patience. Think of the mega-rich who are more than willing to buy 30-year US Treasury bonds that pay less than 4.5% for the next 30-years - from everything the average investor is told, this is a horrible investment. If that's the case, why are the super-rich buying? Are we to assume that the retail investor is right in buying equities while these investors choose the safety of US T-bills?
In regards to money on the sidelines, after we get past the fact that this is just a fallacy, remember, it didn't matter how much money was on the sidelines, General Motors had to restructure through bankruptcy, wipe out its shareholders, force its debt holders to take a severe hit, and its employees had to make fairly severe wage, benefit, and pension plan concessions. All of this is deflationary.
3. Advisors very rarely discuss Secular Bear Market investing strategies with their clients.
Why?
- Too much work? Secular Bear Markets require advisors to do a lot more in the way of research. (it also requires calling all their clients (200 to 1,000+) and making significant changes to their portfolios - may be easier, when the markets crash, to just tell their clients, "Nobody Saw It Coming."
- Not good for an advisor's business/income?
(if they get paid a lot more for having you invested in mutual funds, they may fear losing you to GIC's - and if you own mostly GIC's, they fear that you may not need them anymore.)
- Or maybe, they just don't know much about Secular Bear Markets themselves?
(if that is the case, do these advisors really bring much in the way of value to their clients?)
4. What's best (or easiest) for the advisor isn't always what's best for the client.
(again, even if your mutual funds drop by 50% in value for a third time in just ten years, because your advisor didn't see it coming, again, he or she will probably still "earn" much more for just keeping you invested in these funds compared to what they would have earned had they switched you to GIC's when equity/bond markets were over-valued.)
Please, don't accept, "Just Diversify and Think Long-Term."
(The only people who get rich with this advice are the ones who are giving it to others.)
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A Few Last Things To Consider:
If, over the last ten years, your advisor didn't see the last two market crashes coming (50% drop in investment values), will it destroy your retirement plans if he again misses the next such drop, because he believes his clients should always be invested in the market, regardless of market valuations, where we are in the business cycle, or how long we have been in the current secular trend?
Does your advisor justify his simple buy-and-hold strategy by telling you that he just doesn't believe in "market timing", and history has proven stocks outperform in the long-run?
Remember Japan? The nation with the second biggest economy in the world, and a country that has actually maintained a trade surplus for years on end! Today, their stock market is valued at around 25% of where it was, almost 20 years ago? Therefore, it has lost almost 75% of its value over the last 20 years. And this was during a 20-year period where the global economy was actually growing at an unsustainable pace!
So, the facts are this; the world's second largest economy, an economy that tends to have a trade surplus, has experienced a 75% lose in stock values (Nikkei 225 index), and this all took place during a 20-year period where the world experienced record growth!
Is that long-term enough to prove that simple truths are sometimes not truths at all?
And so, when people try to explain this away by saying that the US isn't Japan, let me make this very clear, the US may be much worse, because Japan is a nation of producers and savers, whereas the US is a nation of consumers and maxed-out debtors.
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Live! Love! Laugh! Learn! Leave a Legacy!
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The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
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Negative Nationalism, Positive Nationalism, and Misguided Patriotism
Excerpts from John Ralston Saul's "The Collapse of Globalism - And The Reinvention of the World"
Negative Nationalism:
Insecurity, poverty, and ambition are three of the roots of this destructive nationalism. Its expression is often dependent on ethnic loyalty, an appropriation of God to one’s side, a certain pride in ignorance, and a conviction that you have been permanently wounded – that is, an active mythology of having been irreparably wounded. On key subjects, ignorance is often encouraged. Such wilful ignorance allows highly sophisticated societies to remain fixated on specific wounds.
Giambattista Vico, the great Italian philosopher: “[W]here ever the human mind is lost in ignorance, man makes himself the measure of all things… [R]umor grows in its course… [T]he unknown is always magnified… [W]henever men can form no idea of distant and unknown things, they judge them by what is familiar and close at hand.”
What is closest at hand will most likely be family or race. Speaker after speaker at the 2004 Republican Convention in the United States invoked the family because, they said, family comes first and is the measure of a society. Of course family is central to human life and to our emotional life in all of its complexity. But family as the measure of structure of society is a mafia argument or an argument of the extreme right, for whom there are only two possible choices: either the sacred family or the sacred nation. In either case, loyalty is measured according to how successfully it represents a closed situation. Thus the democratic and humanist ideas of civilization, society, and community, which are all dependent on our ability to imagine the other – the one who is not close – are expelled to the margins.
Such nationalism of proximity is dependent on fear. The psychoanalyst Erich Fromm once put its existence down to an incapacity to recover from the loss of our pre-modern social structures. And so we embraced “a new idolatry of blood and soil.” This is a nationalism as a culture of belonging, rather than a nationalism as a civilization of culture. Thus, ignorance, often presented with the charm of innocence, becomes a state of sanctity. Erasmus warned against this almost before it existed: ‘lack of culture is not holiness, nor cleverness impiety.” And of course, this is nationalism in which nationality becomes a synonym of ethnicity.’ Finally it is nationalism as belief, as religion.
If you look around the world, there is the same slippage almost everywhere.
As for the United States, the general atmosphere seems to be, in historian Simon Schama’s phrase, a “Manichean struggle between good and evil, freedom and terror.” Why would such a complex and rich society fall in the simplicities of a Manichean view? Rorty’s guess is that the Globalization of the labour market without the protection of a welfare state leaves Americans “much more vulnerable to right-wing populism than are most European countries.”
More important, in this confused atmosphere with negative nationalism’s growing, we have seen the return of the idea of race as a quality of belonging.
The problem lies in the myth of race and racial division.
The Aga Khan: “The clash, if there is such a broad civilizational collision, is not of cultures, but of ignorance.” In this case, it cannot be plain ignorance and must therefore either be wilful or the product of fear.
The least expected and most obvious manifestation of negative nationalism has been God’s willingness to make regular appearances on the side of various participants in these new civilizational clashes.
Whether intended or not, God is clearly back in his old public, but non-religious, role, as a political sidekick, ready to justify whatever is required.
His fading participation – bored perhaps – in wars that drag on, such as in Northern Ireland, has been succeeded by star appearances in massacres all over Africa. He has been wandering the Afghan mountains with Taliban and Al Qaeda guerrillas. He has broken down temples and led riots in India. He has supported anti-immigrant campaigns in Europe. In his spare time, he inspires rhetoric of those who want more of the death penalty, and more virgin brides, more flags of specific colours flown. He accompanies American presidents, and for that matter, most American elected representatives, on all public appearances. In the 2003 State of the Union speech, there were twenty-two religious references.
As a perfect illustration of the Manichean model, both the United States and its worst enemies feel they have direct access to the divine.
It must also be said that in many places, God takes on a very different voice. This is a voice that can be heard via people organizing slums in Bangkok or Nairobi. These people are often the driving forces behind hospitals and schools. They speak for the God who never went away – the force of love working for the common good, quite a different divinity from the one leading armies in the name of political inevitabilities.
Positive Nationalism:
Positive nationalism has been with us throughout history. It is reinvented for each age. And there are equivalents in the Analects of Confucius and the Koran, to name just two among many non-Western approaches.
Adam Smith is perfectly clear about the good citizen’s priorities: “The wise and virtuous man is at all times willing that his own private interest should be sacrificed to the public interest of his own particular order or society. He is at all times willing, too, that the interest of this order or society should be sacrificed to the greater interest of the state or sovereignty.”
What we have seen over the last decade is a renewed and growing desire to build our societies at all levels with our own hands – that is, to find ways to be involved.
Adam Smith: “This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition… is, at the same time, the great and most universal cause of the corruption of our moral sentiments.”
What we do have so far at the international level in the way of regulations with teeth is very limited: the Ottawa Treaty against land mines; the International Criminal Court; the Kyoto Protocol on global warming. What these treaties demonstrate is that international relations do not have to be market driven. If binding agreements on such difficult issues are possible, then international treaties setting corporate tax levels and organizing labour conditions are possible.
Is it realistic to expect such progress? If you look at the evolution over the last decade, you can see that the process is surprisingly fast, considering that the blockage in most cases has come from the most powerful countries. But this is just another reminder that even the remarkable power of the United States cannot be spread thinly to determine world policy. There are now too many nations and regional groups with their own agendas.
Islam, the religion that most concerns the West these days, is fundamentally open and has a more flexible history than Christianity. As the Koran puts it,
We… made you into
Nations and tribes, that
Ye may know each other
(Not that ye may despise
Each other).
What our situation needs is precisely Adam Smith’s public interest, the imagination that Tocqueville invoked, and Rorty’s humanism.
The more complicated our national and international relationships are, the more all of us need to use our most complicated sense of belonging both to feel at home and to find multiple ways to be at home with the widest variety of people and situations.
The common call today is for an examination of values. I am not clear what this means. It has a slight ring of nineteenth-century self-serving nationalism. It would be better to concentrate on something more real, such as serving the public good. Adam Smith put it that “he is certainly not a good citizen who does not wish to promote, by every means in his power, the welfare of the whole society of his fellow citizens.”
If people who know each other well serve the welfare of their fellow citizens, they may learn something unexpected about each other, perhaps about how different they are. If people who do not know each other well, perhaps because they come from different cultures, serve the welfare of their fellow citizens, they may well discover how similar their values are.
In both cases, this would be the process of positive nationalism.
Charles Ferguson: "There has evolved a political duopoly in the United States, in which the two political parties agree to agree on certain things and agree to disagree on others. And, in particular, they agree on things related to finance and money and they disagree on social policy....My quite strong sense is that this is something that is now explicitly understood.
Video I enjoyed: Misguided Patriotism (click to watch)
Negative Nationalism:
Insecurity, poverty, and ambition are three of the roots of this destructive nationalism. Its expression is often dependent on ethnic loyalty, an appropriation of God to one’s side, a certain pride in ignorance, and a conviction that you have been permanently wounded – that is, an active mythology of having been irreparably wounded. On key subjects, ignorance is often encouraged. Such wilful ignorance allows highly sophisticated societies to remain fixated on specific wounds.
Giambattista Vico, the great Italian philosopher: “[W]here ever the human mind is lost in ignorance, man makes himself the measure of all things… [R]umor grows in its course… [T]he unknown is always magnified… [W]henever men can form no idea of distant and unknown things, they judge them by what is familiar and close at hand.”
What is closest at hand will most likely be family or race. Speaker after speaker at the 2004 Republican Convention in the United States invoked the family because, they said, family comes first and is the measure of a society. Of course family is central to human life and to our emotional life in all of its complexity. But family as the measure of structure of society is a mafia argument or an argument of the extreme right, for whom there are only two possible choices: either the sacred family or the sacred nation. In either case, loyalty is measured according to how successfully it represents a closed situation. Thus the democratic and humanist ideas of civilization, society, and community, which are all dependent on our ability to imagine the other – the one who is not close – are expelled to the margins.
Such nationalism of proximity is dependent on fear. The psychoanalyst Erich Fromm once put its existence down to an incapacity to recover from the loss of our pre-modern social structures. And so we embraced “a new idolatry of blood and soil.” This is a nationalism as a culture of belonging, rather than a nationalism as a civilization of culture. Thus, ignorance, often presented with the charm of innocence, becomes a state of sanctity. Erasmus warned against this almost before it existed: ‘lack of culture is not holiness, nor cleverness impiety.” And of course, this is nationalism in which nationality becomes a synonym of ethnicity.’ Finally it is nationalism as belief, as religion.
If you look around the world, there is the same slippage almost everywhere.
As for the United States, the general atmosphere seems to be, in historian Simon Schama’s phrase, a “Manichean struggle between good and evil, freedom and terror.” Why would such a complex and rich society fall in the simplicities of a Manichean view? Rorty’s guess is that the Globalization of the labour market without the protection of a welfare state leaves Americans “much more vulnerable to right-wing populism than are most European countries.”
More important, in this confused atmosphere with negative nationalism’s growing, we have seen the return of the idea of race as a quality of belonging.
The problem lies in the myth of race and racial division.
The Aga Khan: “The clash, if there is such a broad civilizational collision, is not of cultures, but of ignorance.” In this case, it cannot be plain ignorance and must therefore either be wilful or the product of fear.
The least expected and most obvious manifestation of negative nationalism has been God’s willingness to make regular appearances on the side of various participants in these new civilizational clashes.
Whether intended or not, God is clearly back in his old public, but non-religious, role, as a political sidekick, ready to justify whatever is required.
His fading participation – bored perhaps – in wars that drag on, such as in Northern Ireland, has been succeeded by star appearances in massacres all over Africa. He has been wandering the Afghan mountains with Taliban and Al Qaeda guerrillas. He has broken down temples and led riots in India. He has supported anti-immigrant campaigns in Europe. In his spare time, he inspires rhetoric of those who want more of the death penalty, and more virgin brides, more flags of specific colours flown. He accompanies American presidents, and for that matter, most American elected representatives, on all public appearances. In the 2003 State of the Union speech, there were twenty-two religious references.
As a perfect illustration of the Manichean model, both the United States and its worst enemies feel they have direct access to the divine.
It must also be said that in many places, God takes on a very different voice. This is a voice that can be heard via people organizing slums in Bangkok or Nairobi. These people are often the driving forces behind hospitals and schools. They speak for the God who never went away – the force of love working for the common good, quite a different divinity from the one leading armies in the name of political inevitabilities.
Positive Nationalism:
Positive nationalism has been with us throughout history. It is reinvented for each age. And there are equivalents in the Analects of Confucius and the Koran, to name just two among many non-Western approaches.
Adam Smith is perfectly clear about the good citizen’s priorities: “The wise and virtuous man is at all times willing that his own private interest should be sacrificed to the public interest of his own particular order or society. He is at all times willing, too, that the interest of this order or society should be sacrificed to the greater interest of the state or sovereignty.”
What we have seen over the last decade is a renewed and growing desire to build our societies at all levels with our own hands – that is, to find ways to be involved.
Adam Smith: “This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition… is, at the same time, the great and most universal cause of the corruption of our moral sentiments.”
What we do have so far at the international level in the way of regulations with teeth is very limited: the Ottawa Treaty against land mines; the International Criminal Court; the Kyoto Protocol on global warming. What these treaties demonstrate is that international relations do not have to be market driven. If binding agreements on such difficult issues are possible, then international treaties setting corporate tax levels and organizing labour conditions are possible.
Is it realistic to expect such progress? If you look at the evolution over the last decade, you can see that the process is surprisingly fast, considering that the blockage in most cases has come from the most powerful countries. But this is just another reminder that even the remarkable power of the United States cannot be spread thinly to determine world policy. There are now too many nations and regional groups with their own agendas.
Islam, the religion that most concerns the West these days, is fundamentally open and has a more flexible history than Christianity. As the Koran puts it,
We… made you into
Nations and tribes, that
Ye may know each other
(Not that ye may despise
Each other).
What our situation needs is precisely Adam Smith’s public interest, the imagination that Tocqueville invoked, and Rorty’s humanism.
The more complicated our national and international relationships are, the more all of us need to use our most complicated sense of belonging both to feel at home and to find multiple ways to be at home with the widest variety of people and situations.
The common call today is for an examination of values. I am not clear what this means. It has a slight ring of nineteenth-century self-serving nationalism. It would be better to concentrate on something more real, such as serving the public good. Adam Smith put it that “he is certainly not a good citizen who does not wish to promote, by every means in his power, the welfare of the whole society of his fellow citizens.”
If people who know each other well serve the welfare of their fellow citizens, they may learn something unexpected about each other, perhaps about how different they are. If people who do not know each other well, perhaps because they come from different cultures, serve the welfare of their fellow citizens, they may well discover how similar their values are.
In both cases, this would be the process of positive nationalism.
Charles Ferguson: "There has evolved a political duopoly in the United States, in which the two political parties agree to agree on certain things and agree to disagree on others. And, in particular, they agree on things related to finance and money and they disagree on social policy....My quite strong sense is that this is something that is now explicitly understood.
Video I enjoyed: Misguided Patriotism (click to watch)
Inspirational Quotes
(please, keep scrolling down, there are many words of wisdom here)
Strive not to be a success, but rather to be of value. - Albert Einstein
Do good things. Don't do bad things. - Birdsnest
If a free society cannot help the many who are poor, it cannot save the few who are rich. - John F. Kennedy
Your children need your presence more than your presents. - Jesse Jackson
Between stimulus and response there is a space. In that space is our power to choose our response. In our response lies our growth and our freedom. - Viktor E. Frankl
I have decided to stick with love. Hate is too great a burden to bear. - Martin Luther King, Jr.
An investment in knowledge pays the best interest. - Benjamin Franklin
The time is always right to do what is right. - Martin Luther King, Jr.
Possession isn't nine-tenths of the law. It's nine-tenths of the problem. - John Lennon
If you haven't any charity in your heart, you have the worst kind of heart trouble. - Bob Hope
It has become appallingly obvious that our technology has exceeded our humanity. - Albert Einstein
Be the change that you want to see in the world. - Mohandas Gandhi
Education is the ability to listen to almost anything without losing your temper or your self-confidence. - Robert Frost
Tolerance implies no lack of commitment to one's own beliefs. Rather it condemns the oppression or persecution of others. - John F. Kennedy
Before the throne of the Almighty, man will be judged not by his acts but by his intentions. For God alone reads our hearts. - Mohandas Gandhi
First they ignore you, then they laugh at you, then they fight you, then you win. - Mohandas Gandhi
My religion consists of a humble admiration of the illimitable superior spirit who reveals himself in the slight details we are able to perceive with our frail and feeble mind. - Albert Einstein
I believe in God, but not as one thing, not as an old man in the sky. I believe that what people call God is something in all of us. I believe that what Jesus and Mohammed and Buddha and all the rest said was right. It's just that the translations have gone wrong. - John Lennon
Am I not destroying my enemies when I make friends of them? - Abraham Lincoln
I don't like that man. I must get to know him better. - Abraham Lincoln
He has a right to criticize, who has a heart to help. - Abraham Lincoln
Always remember that you are absolutely unique. Just like everyone else. - Margaret Mead
I have no special talent. I am only passionately curious. - Albert Einstein
The superior man understands what is right; the inferior man understands what will sell. - Confucius
Be kind, for everyone you meet is fighting a harder battle. - Plato
Nine-tenths of wisdom is being wise in time. - Theodore Roosevelt
Wisdom begins in wonder. - Socrates
If you listen to your fears, you will die never knowing what a great person you might have been. - Robert H. Schuller
Do not dwell in the past, do not dream of the future, concentrate the mind on the present moment. - Buddha
Not everything that can be counted counts, and not everything that counts can be counted. - Albert Einstein
The value of a man should be seen in what he gives and not in what he is able to receive. - Albert Einstein
Only a life lived for others is a life worthwhile. - Albert Einstein
Peace cannot be kept by force; it can only be achieved by understanding. - Albert Einstein
Whether you think that you can, or that you can't, you are usually right. - Henry Ford
Obstacles are those frightful things you see when you take your eyes off your goal. - Henry Ford
Giving back involves a certain amount of giving up. - Colin Powell
Honesty is the best policy. - Benjamin Franklin
We are here to add what we can to life, not to get what we can from it. - William Osler
Freedom lies in being bold. - Robert Frost
A man is but the product of his thoughts what he thinks, he becomes. - Mohandas Gandhi
Everyone who wills can hear the inner voice. It is within everyone. - Mohandas Gandhi
Happiness is when what you think, what you say, and what you do are in harmony. - Mohandas Gandhi
I believe in the fundamental truth of all great religions of the world. - Mohandas Gandhi
Where love is, there God is also. - Mohandas Gandhi
Never look down on anybody unless you're helping them up. - Jesse Jackson
You must not lose faith in humanity. Humanity is an ocean; if a few drops of the ocean are dirty, the ocean does not become dirty. - Mohandas Gandhi
Man is not made for defeat. - Ernest Hemingway
A moment's insight is sometimes worth a life's experience. - Oliver Wendell Holmes, Jr.
Man's mind, stretched by a new idea, never goes back to its original dimensions. - Oliver Wendell Holmes, Jr.
The greatest thing in this world is not so much where we are, but in what direction we are moving. - Oliver Wendell Holmes, Jr.
Middle age is when you still believe you'll feel better in the morning. - Bob Hope
He who opens a school door, closes a prison. - Victor Hugo
Nothing else in the world... not all the armies... is so powerful as an idea whose time has come. - Victor Hugo
One can resist the invasion of an army but one cannot resist the invasion of ideas. - Victor Hugo
The supreme happiness of life is the conviction that we are loved; loved for ourselves, or rather in spite of ourselves. - Victor Hugo
There is nothing like a dream to create the future. - Victor Hugo
Toleration is the best religion. - Victor Hugo
To love another person is to see the face of God. - Victor Hugo
I demand more of myself than anyone else could ever expect. - Julius Irving
Of all our possessions, wisdom alone is immortal. - Isocrates
Keep hope alive! - Jesse Jackson
Your vision will become clear only when you can look into your own heart. Who looks outside, dreams; who looks inside, awakes. - Carl Jung
A child miseducated is a child lost. - John F. Kennedy
Mankind must put an end to war before war puts an end to mankind. - John F. Kennedy
Mothers all want their sons to grow up to be president, but they don't want them to become politicians in the process. - John F. Kennedy
Our problems are man-made, therefore they may be solved by man. And man can be as big as he wants. No problem of human destiny is beyond human beings. - John F. Kennedy
There are risks and costs to action. But they are far less than the long range risks of comfortable inaction. - John F. Kennedy
Those who dare to fail miserably can achieve greatly. - John F. Kennedy
Too often we... enjoy the comfort of opinion without the discomfort of thought. - John F. Kennedy
We have the power to make this the best generation of mankind in the history of the world or to make it the last. - John F. Kennedy
Ask not what your country can do for you; ask what you can do for your country. - John F. Kennedy
Darkness cannot drive out darkness; only light can do that. Hate cannot drive out hate; only love can do that. - Martin Luther King, Jr.
Every man must decide whether he will walk in the light of creative altruism or in the darkness of destructive selfishness. - Martin Luther King, Jr.
I look to a day when people will not be judged by the color of their skin, but by the content of their character. - Martin Luther King, Jr.
Life's most persistent and urgent question is, 'What are you doing for others?' - Martin Luther King, Jr.
Our lives begin to end the day we become silent about things that matter. - Martin Luther King, Jr.
Our scientific power has outrun our spiritual power. We have guided missiles and misguided men. - Martin Luther King, Jr.
Peace is not merely a distant goal that we seek, but a means by which we arrive at that goal. - Martin Luther King, Jr.
The hope of a secure and livable world lies with disciplined nonconformists who are dedicated to justice, peace and brotherhood. - Martin Luther King, Jr.
The past is prophetic in that it asserts loudly that wars are poor chisels for carving out peaceful tomorrows. - Martin Luther King, Jr.
The quality, not the longevity, of one's life is what is important. - Martin Luther King, Jr.
We may have all come on different ships, but we're in the same boat now. - Martin Luther King, Jr.
We must develop and maintain the capacity to forgive. He who is devoid of the power to forgive is devoid of the power to love. There is some good in the worst of us and some evil in the best of us. When we discover this, we are less prone to hate our enemies. - Martin Luther King, Jr.
We must learn to live together as brothers or perish together as fools. - Martin Luther King, Jr.
God could not be everywhere, and therefore he made mothers. - Rudyard Kipling
I always prefer to believe the best of everybody, it saves so much trouble. - Rudyard Kipling
Corrupt politicians make the other ten percent look bad. - Henry A. Kissinger
In crises the most daring course is often safest. - Henry A. Kissinger
No one will ever win the battle of the sexes; there's too much fraternizing with the enemy. - Henry A. Kissinger
The task of the leader is to get his people from where they are to where they have not been. - Henry A. Kissinger
To be absolutely certain about something, one must know everything or nothing about it. - Henry A. Kissinger
Whatever must happen ultimately should happen immediately. - Henry A. Kissinger
The more I see the less I know for sure. - John Lennon
America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves. - Abraham Lincoln
Books serve to show a man that those original thoughts of his aren't very new at all. - Abraham Lincoln
Everybody likes a compliment. - Abraham Lincoln
Every one desires to live long, but no one would be old. - Abraham Lincoln
Give me six hours to chop down a tree and I will spend the first four sharpening the axe. - Abraham Lincoln
Fourscore and seven years ago our fathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal. - Abraham Lincoln
I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts. - Abraham Lincoln
I am not bound to win, but I am bound to be true. I am not bound to succeed, but I am bound to live by the light that I have. I must stand with anybody that stands right, and stand with him while he is right, and part with him when he goes wrong. - Abraham Lincoln
I do the very best I know how - the very best I can; and I mean to keep on doing so until the end. - Abraham Lincoln
I want it said of me by those who knew me best, that I always plucked a thistle and planted a flower where I thought a flower would grow. - Abraham Lincoln
If I were two-faced, would I be wearing this one? - Abraham Lincoln
If you look for the bad in people expecting to find it, you surely will. - Abraham Lincoln
Most folks are as happy as they make up their minds to be. - Abraham Lincoln
My great concern is not whether you have failed, but whether you are content with your failure. - Abraham Lincoln
Nearly all men can stand adversity, but if you want to test a man's character, give him power. - Abraham Lincoln
No man has a good enough memory to be a successful liar. - Abraham Lincoln
The probability that we may fail in the struggle ought not to deter us from the support of a cause we believe to be just. - Abraham Lincoln
Those who deny freedom to others deserve it not for themselves. - Abraham Lincoln
You cannot escape the responsibility of tomorrow by evading it today. - Abraham Lincoln
You have to do your own growing no matter how tall your grandfather was. - Abraham Lincoln
You must accept the truth from whatever source it comes. - Maimonides
A good head and a good heart are always a formidable combination. - Nelson Mandela
Education is the most powerful weapon which you can use to change the world. - Nelson Mandela
I learned that courage was not the absence of fear, but the triumph over it. The brave man is not he who does not feel afraid, but he who conquers that fear. - Nelson Mandela
Always seek out the seed of triumph in every adversity. - Og Mandino
Do all things with love. - Og Mandino
Take the attitude of a student, never be too big to ask questions, never know too much to learn something new. - Og Mandino
To do anything truly worth doing, I must not stand back shivering and thinking of the cold and danger, but jump in with gusto and scramble through as well as I can. - Og Mandino
A small group of thoughtful people could change the world. Indeed, it's the only thing that ever has. - Margaret Mead
I must admit that I personally measure success in terms of the contributions an individual makes to her or his fellow human beings. - Margaret Mead
One of the oldest human needs is having someone to wonder where you are when you don't come home at night. - Margaret Mead
We won't have a society if we destroy the environment. - Margaret Mead
Women want mediocre men, and men are working to be as mediocre as possible. - Margaret Mead
Don't be humble... you're not that great. - Golda Meir
Moses dragged us for 40 years through the desert to bring us to the one place in the Middle East where there was no oil. - Golda Meir
A society that has more justice is a society that needs less charity. - Ralph Nader
There can be no daily democracy without daily citizenship. - Ralph Nader
When strangers start acting like neighbors... communities are reinvigorated. - Ralph Nader
The only alternative to coexistence is codestruction. - Jawaharlal Nehru
I don't know that there are any short cuts to doing a good job. - Sandra Day O'Connor
No man should escape our universities without knowing how little he knows. - J. Robert Oppenheimer
Belief is a wise wager. Granted that faith cannot be proved, what harm will come to you if you gamble on its truth and it proves false? If you gain, you gain all; if you lose, you lose nothing. Wager, then, without hesitation, that He exists. - Blaise Pascal
Kind words do not cost much. Yet they accomplish much. - Blaise Pascal
Nothing gives rest but the sincere search for truth. - Blaise Pascal
People are usually more convinced by reasons they discovered themselves than by those found by others. - Blaise Pascal
The fundamental cause of trouble in the world today is that the stupid are cocksure while the intelligent are full of doubt. - Bertrand Russell
The fact that an opinion has been widely held is no evidence that it is not utterly absurd; indeed, in view of the silliness of the majority of mankind, a widespread belief is more likely to be foolish than sensible. - Bertrand Russell
A stupid man's report of what a clever man says is never accurate because he unconsciously translates what he hears into something he can understand. - Bertrand Russell
It is clear that thought is not free if the profession of certain opinions make it impossible to earn a living. - Bertrand Russell
We know the truth, not only by the reason, but also by the heart. - Blaise Pascal
An excuse is worse and more terrible than a lie, for an excuse is a lie guarded. - Pope John Paul II
As the family goes, so goes the nation and so goes the whole world in which we live. - Pope John Paul II
Violence and arms can never resolve the problems of men. - Pope John Paul II
War is a defeat for humanity. - Pope John Paul II
All men are by nature equal, made all of the same earth by one Workman; and however we deceive ourselves, as dear unto God is the poor peasant as the mighty prince. - Plato
An imbalance between rich and poor is the oldest and most fatal ailment of all republics. - Plutarch
It is part of a good man to do great and noble deeds, though he risk everything. - Plutarch
The mind is not a vessel to be filled but a fire to be kindled. - Plutarch
The omission of good is no less reprehensible than the commission of evil. - Plutarch
Those who aim at great deeds must also suffer greatly. - Plutarch
What we achieve inwardly will change outer reality. - Plutarch
The oldest, shortest words - "yes" and "no" - are those which require the most thought. - Pythagoras
What else could this mean? - Tony Robbins
Seek first to understand, then to be understood. - Stephen Covey
Character isn't something you were born with and can't change, like your fingerprints. It's something you weren't born with and must take responsibility for forming. - Jim Rohn
When the rich wage war, it's the poor who die. - Jean-Paul Sartre
My biggest fear; that people, due to a lack of education, and therefore, a lack of enlightenment, understanding and empathy, in trying to protect their self-interest, lose sight of the bigger picture, and do not rise above our predatory, self-preservation mentality, and in the process, lose, not only our "perceived financial wealth", but much more than we ever thought possible, our ability to care for others, especially those with whom we have little emotional connection and from whom we can gain no financial benefit. That would be a step backwards for humanity. - Sukh Hayre
Live! Love! Laugh! Learn! Leave a Legacy!
Strive not to be a success, but rather to be of value. - Albert Einstein
Do good things. Don't do bad things. - Birdsnest
If a free society cannot help the many who are poor, it cannot save the few who are rich. - John F. Kennedy
Your children need your presence more than your presents. - Jesse Jackson
Between stimulus and response there is a space. In that space is our power to choose our response. In our response lies our growth and our freedom. - Viktor E. Frankl
I have decided to stick with love. Hate is too great a burden to bear. - Martin Luther King, Jr.
An investment in knowledge pays the best interest. - Benjamin Franklin
The time is always right to do what is right. - Martin Luther King, Jr.
Possession isn't nine-tenths of the law. It's nine-tenths of the problem. - John Lennon
If you haven't any charity in your heart, you have the worst kind of heart trouble. - Bob Hope
It has become appallingly obvious that our technology has exceeded our humanity. - Albert Einstein
Be the change that you want to see in the world. - Mohandas Gandhi
Education is the ability to listen to almost anything without losing your temper or your self-confidence. - Robert Frost
Tolerance implies no lack of commitment to one's own beliefs. Rather it condemns the oppression or persecution of others. - John F. Kennedy
Before the throne of the Almighty, man will be judged not by his acts but by his intentions. For God alone reads our hearts. - Mohandas Gandhi
First they ignore you, then they laugh at you, then they fight you, then you win. - Mohandas Gandhi
My religion consists of a humble admiration of the illimitable superior spirit who reveals himself in the slight details we are able to perceive with our frail and feeble mind. - Albert Einstein
I believe in God, but not as one thing, not as an old man in the sky. I believe that what people call God is something in all of us. I believe that what Jesus and Mohammed and Buddha and all the rest said was right. It's just that the translations have gone wrong. - John Lennon
Am I not destroying my enemies when I make friends of them? - Abraham Lincoln
I don't like that man. I must get to know him better. - Abraham Lincoln
He has a right to criticize, who has a heart to help. - Abraham Lincoln
Always remember that you are absolutely unique. Just like everyone else. - Margaret Mead
I have no special talent. I am only passionately curious. - Albert Einstein
The superior man understands what is right; the inferior man understands what will sell. - Confucius
Be kind, for everyone you meet is fighting a harder battle. - Plato
Nine-tenths of wisdom is being wise in time. - Theodore Roosevelt
Wisdom begins in wonder. - Socrates
If you listen to your fears, you will die never knowing what a great person you might have been. - Robert H. Schuller
Do not dwell in the past, do not dream of the future, concentrate the mind on the present moment. - Buddha
Not everything that can be counted counts, and not everything that counts can be counted. - Albert Einstein
The value of a man should be seen in what he gives and not in what he is able to receive. - Albert Einstein
Only a life lived for others is a life worthwhile. - Albert Einstein
Peace cannot be kept by force; it can only be achieved by understanding. - Albert Einstein
Whether you think that you can, or that you can't, you are usually right. - Henry Ford
Obstacles are those frightful things you see when you take your eyes off your goal. - Henry Ford
Giving back involves a certain amount of giving up. - Colin Powell
Honesty is the best policy. - Benjamin Franklin
We are here to add what we can to life, not to get what we can from it. - William Osler
Freedom lies in being bold. - Robert Frost
A man is but the product of his thoughts what he thinks, he becomes. - Mohandas Gandhi
Everyone who wills can hear the inner voice. It is within everyone. - Mohandas Gandhi
Happiness is when what you think, what you say, and what you do are in harmony. - Mohandas Gandhi
I believe in the fundamental truth of all great religions of the world. - Mohandas Gandhi
Where love is, there God is also. - Mohandas Gandhi
Never look down on anybody unless you're helping them up. - Jesse Jackson
You must not lose faith in humanity. Humanity is an ocean; if a few drops of the ocean are dirty, the ocean does not become dirty. - Mohandas Gandhi
Man is not made for defeat. - Ernest Hemingway
A moment's insight is sometimes worth a life's experience. - Oliver Wendell Holmes, Jr.
Man's mind, stretched by a new idea, never goes back to its original dimensions. - Oliver Wendell Holmes, Jr.
The greatest thing in this world is not so much where we are, but in what direction we are moving. - Oliver Wendell Holmes, Jr.
Middle age is when you still believe you'll feel better in the morning. - Bob Hope
He who opens a school door, closes a prison. - Victor Hugo
Nothing else in the world... not all the armies... is so powerful as an idea whose time has come. - Victor Hugo
One can resist the invasion of an army but one cannot resist the invasion of ideas. - Victor Hugo
The supreme happiness of life is the conviction that we are loved; loved for ourselves, or rather in spite of ourselves. - Victor Hugo
There is nothing like a dream to create the future. - Victor Hugo
Toleration is the best religion. - Victor Hugo
To love another person is to see the face of God. - Victor Hugo
I demand more of myself than anyone else could ever expect. - Julius Irving
Of all our possessions, wisdom alone is immortal. - Isocrates
Keep hope alive! - Jesse Jackson
Your vision will become clear only when you can look into your own heart. Who looks outside, dreams; who looks inside, awakes. - Carl Jung
A child miseducated is a child lost. - John F. Kennedy
Mankind must put an end to war before war puts an end to mankind. - John F. Kennedy
Mothers all want their sons to grow up to be president, but they don't want them to become politicians in the process. - John F. Kennedy
Our problems are man-made, therefore they may be solved by man. And man can be as big as he wants. No problem of human destiny is beyond human beings. - John F. Kennedy
There are risks and costs to action. But they are far less than the long range risks of comfortable inaction. - John F. Kennedy
Those who dare to fail miserably can achieve greatly. - John F. Kennedy
Too often we... enjoy the comfort of opinion without the discomfort of thought. - John F. Kennedy
We have the power to make this the best generation of mankind in the history of the world or to make it the last. - John F. Kennedy
Ask not what your country can do for you; ask what you can do for your country. - John F. Kennedy
Darkness cannot drive out darkness; only light can do that. Hate cannot drive out hate; only love can do that. - Martin Luther King, Jr.
Every man must decide whether he will walk in the light of creative altruism or in the darkness of destructive selfishness. - Martin Luther King, Jr.
I look to a day when people will not be judged by the color of their skin, but by the content of their character. - Martin Luther King, Jr.
Life's most persistent and urgent question is, 'What are you doing for others?' - Martin Luther King, Jr.
Our lives begin to end the day we become silent about things that matter. - Martin Luther King, Jr.
Our scientific power has outrun our spiritual power. We have guided missiles and misguided men. - Martin Luther King, Jr.
Peace is not merely a distant goal that we seek, but a means by which we arrive at that goal. - Martin Luther King, Jr.
The hope of a secure and livable world lies with disciplined nonconformists who are dedicated to justice, peace and brotherhood. - Martin Luther King, Jr.
The past is prophetic in that it asserts loudly that wars are poor chisels for carving out peaceful tomorrows. - Martin Luther King, Jr.
The quality, not the longevity, of one's life is what is important. - Martin Luther King, Jr.
We may have all come on different ships, but we're in the same boat now. - Martin Luther King, Jr.
We must develop and maintain the capacity to forgive. He who is devoid of the power to forgive is devoid of the power to love. There is some good in the worst of us and some evil in the best of us. When we discover this, we are less prone to hate our enemies. - Martin Luther King, Jr.
We must learn to live together as brothers or perish together as fools. - Martin Luther King, Jr.
God could not be everywhere, and therefore he made mothers. - Rudyard Kipling
I always prefer to believe the best of everybody, it saves so much trouble. - Rudyard Kipling
Corrupt politicians make the other ten percent look bad. - Henry A. Kissinger
In crises the most daring course is often safest. - Henry A. Kissinger
No one will ever win the battle of the sexes; there's too much fraternizing with the enemy. - Henry A. Kissinger
The task of the leader is to get his people from where they are to where they have not been. - Henry A. Kissinger
To be absolutely certain about something, one must know everything or nothing about it. - Henry A. Kissinger
Whatever must happen ultimately should happen immediately. - Henry A. Kissinger
The more I see the less I know for sure. - John Lennon
America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves. - Abraham Lincoln
Books serve to show a man that those original thoughts of his aren't very new at all. - Abraham Lincoln
Everybody likes a compliment. - Abraham Lincoln
Every one desires to live long, but no one would be old. - Abraham Lincoln
Give me six hours to chop down a tree and I will spend the first four sharpening the axe. - Abraham Lincoln
Fourscore and seven years ago our fathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal. - Abraham Lincoln
I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts. - Abraham Lincoln
I am not bound to win, but I am bound to be true. I am not bound to succeed, but I am bound to live by the light that I have. I must stand with anybody that stands right, and stand with him while he is right, and part with him when he goes wrong. - Abraham Lincoln
I do the very best I know how - the very best I can; and I mean to keep on doing so until the end. - Abraham Lincoln
I want it said of me by those who knew me best, that I always plucked a thistle and planted a flower where I thought a flower would grow. - Abraham Lincoln
If I were two-faced, would I be wearing this one? - Abraham Lincoln
If you look for the bad in people expecting to find it, you surely will. - Abraham Lincoln
Most folks are as happy as they make up their minds to be. - Abraham Lincoln
My great concern is not whether you have failed, but whether you are content with your failure. - Abraham Lincoln
Nearly all men can stand adversity, but if you want to test a man's character, give him power. - Abraham Lincoln
No man has a good enough memory to be a successful liar. - Abraham Lincoln
The probability that we may fail in the struggle ought not to deter us from the support of a cause we believe to be just. - Abraham Lincoln
Those who deny freedom to others deserve it not for themselves. - Abraham Lincoln
You cannot escape the responsibility of tomorrow by evading it today. - Abraham Lincoln
You have to do your own growing no matter how tall your grandfather was. - Abraham Lincoln
You must accept the truth from whatever source it comes. - Maimonides
A good head and a good heart are always a formidable combination. - Nelson Mandela
Education is the most powerful weapon which you can use to change the world. - Nelson Mandela
I learned that courage was not the absence of fear, but the triumph over it. The brave man is not he who does not feel afraid, but he who conquers that fear. - Nelson Mandela
Always seek out the seed of triumph in every adversity. - Og Mandino
Do all things with love. - Og Mandino
Take the attitude of a student, never be too big to ask questions, never know too much to learn something new. - Og Mandino
To do anything truly worth doing, I must not stand back shivering and thinking of the cold and danger, but jump in with gusto and scramble through as well as I can. - Og Mandino
A small group of thoughtful people could change the world. Indeed, it's the only thing that ever has. - Margaret Mead
I must admit that I personally measure success in terms of the contributions an individual makes to her or his fellow human beings. - Margaret Mead
One of the oldest human needs is having someone to wonder where you are when you don't come home at night. - Margaret Mead
We won't have a society if we destroy the environment. - Margaret Mead
Women want mediocre men, and men are working to be as mediocre as possible. - Margaret Mead
Don't be humble... you're not that great. - Golda Meir
Moses dragged us for 40 years through the desert to bring us to the one place in the Middle East where there was no oil. - Golda Meir
A society that has more justice is a society that needs less charity. - Ralph Nader
There can be no daily democracy without daily citizenship. - Ralph Nader
When strangers start acting like neighbors... communities are reinvigorated. - Ralph Nader
The only alternative to coexistence is codestruction. - Jawaharlal Nehru
I don't know that there are any short cuts to doing a good job. - Sandra Day O'Connor
No man should escape our universities without knowing how little he knows. - J. Robert Oppenheimer
Belief is a wise wager. Granted that faith cannot be proved, what harm will come to you if you gamble on its truth and it proves false? If you gain, you gain all; if you lose, you lose nothing. Wager, then, without hesitation, that He exists. - Blaise Pascal
Kind words do not cost much. Yet they accomplish much. - Blaise Pascal
Nothing gives rest but the sincere search for truth. - Blaise Pascal
People are usually more convinced by reasons they discovered themselves than by those found by others. - Blaise Pascal
The fundamental cause of trouble in the world today is that the stupid are cocksure while the intelligent are full of doubt. - Bertrand Russell
The fact that an opinion has been widely held is no evidence that it is not utterly absurd; indeed, in view of the silliness of the majority of mankind, a widespread belief is more likely to be foolish than sensible. - Bertrand Russell
A stupid man's report of what a clever man says is never accurate because he unconsciously translates what he hears into something he can understand. - Bertrand Russell
It is clear that thought is not free if the profession of certain opinions make it impossible to earn a living. - Bertrand Russell
We know the truth, not only by the reason, but also by the heart. - Blaise Pascal
An excuse is worse and more terrible than a lie, for an excuse is a lie guarded. - Pope John Paul II
As the family goes, so goes the nation and so goes the whole world in which we live. - Pope John Paul II
Violence and arms can never resolve the problems of men. - Pope John Paul II
War is a defeat for humanity. - Pope John Paul II
All men are by nature equal, made all of the same earth by one Workman; and however we deceive ourselves, as dear unto God is the poor peasant as the mighty prince. - Plato
An imbalance between rich and poor is the oldest and most fatal ailment of all republics. - Plutarch
It is part of a good man to do great and noble deeds, though he risk everything. - Plutarch
The mind is not a vessel to be filled but a fire to be kindled. - Plutarch
The omission of good is no less reprehensible than the commission of evil. - Plutarch
Those who aim at great deeds must also suffer greatly. - Plutarch
What we achieve inwardly will change outer reality. - Plutarch
The oldest, shortest words - "yes" and "no" - are those which require the most thought. - Pythagoras
What else could this mean? - Tony Robbins
Seek first to understand, then to be understood. - Stephen Covey
Character isn't something you were born with and can't change, like your fingerprints. It's something you weren't born with and must take responsibility for forming. - Jim Rohn
When the rich wage war, it's the poor who die. - Jean-Paul Sartre
My biggest fear; that people, due to a lack of education, and therefore, a lack of enlightenment, understanding and empathy, in trying to protect their self-interest, lose sight of the bigger picture, and do not rise above our predatory, self-preservation mentality, and in the process, lose, not only our "perceived financial wealth", but much more than we ever thought possible, our ability to care for others, especially those with whom we have little emotional connection and from whom we can gain no financial benefit. That would be a step backwards for humanity. - Sukh Hayre
Live! Love! Laugh! Learn! Leave a Legacy!
Music That Moves Me
(click on any of the videos below and listen to some great poets/storytellers)
Another Sunny Day 12/25 - John Mellencamp
The Ghost of Tom Joad - Bruce Springsteen
Mr. Love & Justice - Billy Bragg
Blowin' in the Wind - Bob Dylan
That's Just The Way It Is - Bruce Hornsby
Crossing a Canyon - 54-40
For the Children - John Mellencamp
In the Ghetto - Elvis Presley
Working Class Hero - John Lennon
Rich Man's War - Steve Earle
Billy Austin - Steve Earle
Rotting on Remand - Billy Bragg
The World Turned Upside Down - Billy Bragg
Sixteen Tons - Tennessee Ernie Ford
Peace of Mind - Grapes of Wrath
Hard Times for an Honest Man - John Mellencamp
I Keep Faith - Billy Bragg
Talkin' Bout a Revolution - Tracy Chapman
Call it Democracy - Bruce Cockburn
Ideology - Billy Bragg
I Ain't Got No Home In This World Anymore - Bruce Springsteen (Woody Guthrie)
World Turned Upside Down - Billy Bragg
Waiting for the Great Leap Forward - Billy Bragg
All You Facists (are bound to lose) - Billy Bragg (Woody Guthrie)
Jesus Christ - Woody Guthrie
Where Have All The Flowers Gone - Pete Seeger
Bourgeois Blues - Leadbelly
Bush War Blues - Billy Bragg
Help Save The Youth of America - Billy Bragg
Magic - Bruce Springsteen
Since When - 54-40
Upfield - Billy Bragg
Sing Their Souls Back Home - Billy Bragg
Minutes to Memories - John Mellencamp
Last to Die (for a mistake) - Bruce Springsteen
Northern Soul - 54-40
The Price of Oil - Billy Bragg
God's Gonna Cut You Down - Johnny Cash
The Road I Must Travel - The Nightwatchman
Walk Tall - John Mellencamp
Now More Than Ever - John Mellencamp
American Land - Bruce Springsteen
Your Life is Now - John Mellencamp
Mr. Wendal - Arrested Development
The Times They Are A Changin' - Bob Dylan
This is here, This is Now - 54-40
B-Side of Life - Timbuk3
Life is Hard - Timbuk3
Dirty Dirty Rice - Timbuk3
Superman's Song - Crash Test Dummies
You've Got A Friend - James Taylor
Imagine - John Lennon
We Are The World - USA for Africa (United Support of Artists for Africa)
Another Sunny Day 12/25 - John Mellencamp
The Ghost of Tom Joad - Bruce Springsteen
Mr. Love & Justice - Billy Bragg
Blowin' in the Wind - Bob Dylan
That's Just The Way It Is - Bruce Hornsby
Crossing a Canyon - 54-40
For the Children - John Mellencamp
In the Ghetto - Elvis Presley
Working Class Hero - John Lennon
Rich Man's War - Steve Earle
Billy Austin - Steve Earle
Rotting on Remand - Billy Bragg
The World Turned Upside Down - Billy Bragg
Sixteen Tons - Tennessee Ernie Ford
Peace of Mind - Grapes of Wrath
Hard Times for an Honest Man - John Mellencamp
I Keep Faith - Billy Bragg
Talkin' Bout a Revolution - Tracy Chapman
Call it Democracy - Bruce Cockburn
Ideology - Billy Bragg
I Ain't Got No Home In This World Anymore - Bruce Springsteen (Woody Guthrie)
World Turned Upside Down - Billy Bragg
Waiting for the Great Leap Forward - Billy Bragg
All You Facists (are bound to lose) - Billy Bragg (Woody Guthrie)
Jesus Christ - Woody Guthrie
Where Have All The Flowers Gone - Pete Seeger
Bourgeois Blues - Leadbelly
Bush War Blues - Billy Bragg
Help Save The Youth of America - Billy Bragg
Magic - Bruce Springsteen
Since When - 54-40
Upfield - Billy Bragg
Sing Their Souls Back Home - Billy Bragg
Minutes to Memories - John Mellencamp
Last to Die (for a mistake) - Bruce Springsteen
Northern Soul - 54-40
The Price of Oil - Billy Bragg
God's Gonna Cut You Down - Johnny Cash
The Road I Must Travel - The Nightwatchman
Walk Tall - John Mellencamp
Now More Than Ever - John Mellencamp
American Land - Bruce Springsteen
Your Life is Now - John Mellencamp
Mr. Wendal - Arrested Development
The Times They Are A Changin' - Bob Dylan
This is here, This is Now - 54-40
B-Side of Life - Timbuk3
Life is Hard - Timbuk3
Dirty Dirty Rice - Timbuk3
Superman's Song - Crash Test Dummies
You've Got A Friend - James Taylor
Imagine - John Lennon
We Are The World - USA for Africa (United Support of Artists for Africa)
John Mellencamp - "Life, Death, Love, and Freedom" Tour - February 18, 2008 (Have seen him every time he has come to Vancouver since 1989 - I missed the 1987 concert because I had to study for an exam the next day)
54-40 - PNE - August 30, 2008 (First time seeing them live. Saw them again on Canada Day 2009)
Billy Bragg - "I Keep Faith" Tour - St Andrews Wesley Church - June 5, 2008 (Saw him for the first time April 2007 at the Commodore - friend had free tickets. It was the first time I actually ever heard of him, to tell you the truth. Now, I am looking forward to seeing him again in November, back at the Commodore).
Me and my ladies - front row centre at the Mellencamp concert(we rushed the stage). Well, we politely asked the security guard (that's him behind me) and he said it was okay. A great place for the girls to watch their first concert. They tried to get John's attention to have him autograph their shirts, but it didn't work out. A roadie did give them a guitar pick each as we were leaving the show though.
Bruce Springsteen - Magic Tour - March 31, 2008 - (This was the first time I saw Springsteen live. Amazing show. When I tell my friends (the ones who are fans, anways), how great the show was, they all say the same thing, "That's why they call him The Boss."
The Springsteen photo I had to get from a website as I did not have my camera with me at that concert.
Poetry: an imaginative awareness of experience expressed through meaning, sound, and rhythmic language choices, so as to evoke an emotional response.
Storytellers deliver unique insight into humanity. Good storytelling is powerful and can motivate people as well as entertain them. A storyteller enhances the actual story by making an art form out of the telling of the story.
Friday, September 25, 2009
My Thoughts on Life Insurance - Why I prefer term life insurance over whole life and universal life
Back when I worked for Dundee Wealth, as an "independent" financial advisor, I submitted the following for approval (to be posted on my Dundee Securities webpage).
I'm guessing, they were not too pleased with one of their independent advisors going rogue on them (I was going rogue, but in the good sense, if there can be such a thing as a good rogue), and they kindly rejected my request.
Now, these opinions are just that, my own personal opinions in regards to life insurance. Not everyone (or anyone, for that matter), may see things the same way.
So, do your own research, know both sides of the life insurance debate, and then draw your own conclusions; that is the best advice I can give you when it comes to life insurance.
Here now, is what I asked them to approve back in April 2007:
(you can decide for yourself whether this is good advice or not)
____________________________________________________________________
My core belief about life insurance, or any type of insurance for that matter, is that its main purpose should be to protect the insured against a very highly unlikely event that, if it were to occur, would cause significant financial hardship to the insured or to his or her dependents.
If the event (death, disability, critical illness, need for long-term care) would not cause significant financial hardship, insurance is not required.
If an event IS HIGHLY LIKELY to occur, I do not believe that this type of risk can be economically transferred to an insurance company. The cost of insurance would just be too high.
With an event that is highly likely to occur, people must take personal responsibility to protect themselves against its financial impact by regularly setting aside savings and building up a personal financial reserve so that they have a sufficient emergency fund that will carry them through these types of situations if they were to occur.
You can read more about my beliefs on this topic under the Disability, Critical Illness, and Long-Term Care Insurance web page.
Now back to life insurance.
Where I may differ from others is in my belief that term life insurance is usually the only type of life insurance most people need, if they need life insurance at all. Very few people actually need permanent life insurance (whole life or universal life).
Because the likelihood of unexpectedly dying young is so low, people should only have to part with a very small amount of their hard-earned money to protect themselves against such a financial catastrophe. The cost of life insurance should be relatively minimal because the probability of collecting on the insurance policy is highly unlikely (and that’s a good thing).
One thing to remember is that insurance is a zero-sum game. What people pay in the way of premiums goes towards three things:
1. paying for the company’s operating costs (including salaries, bonuses, and commissions)
2. providing an adequate return on investment for the company’s shareholders, and
3. paying for claims
Insurance products are usually priced to take all of the above into account. So a fair amount of the premiums that people pay go towards covering operating costs and providing a reasonable profit for the shareholders of the company. The life insurance company does serve an extremely useful purpose: how else would we go about getting life insurance coverage we actually need?
Now, Who Needs Term Life Insurance?
Unfortunately, the reality is, life insurance is a necessity for a lot of people.
If you have someone who is financially dependent upon you, you probably need term life insurance.
Ask yourself:
Would my death cause financial hardship for anyone I care for?
Would my family be able afford to have the life experiences, the memorable moments and the opportunities that I look forward to being able to provide for them (family vacations, extra-curricular activities, university costs, etc.)?
Your responsibility is to make sure that you have the right amount of the right type of life insurance coverage and to keep the cost as low as possible. You don’t want to be over-insured, under-insured or improperly insured.
I whole-heartedly believe in term life insurance because, to me, it makes complete sense. Now, there are a few rare occasions where whole life or universal life is a better risk-management solution for the client, but I believe that these are the exceptions to the rule, and will cover off these exceptions a little bit later.
For most people, after they reach a certain age, while still emotionally devastating to their loved ones, their death would no longer result in financial hardship for anyone. I believe, that as soon as financial hardship is no longer a concern, and assuming you’re still fairly healthy (your doctor sees no reason why you wouldn’t have at least a normal life expectancy), life insurance, of any kind, is no longer needed, so I would then recommend that clients cancel their term life insurance policies. That is why term life insurance is the perfect solution for most people. It’s cheap, and you only pay for it as long as you need it.
When life insurance is no longer a necessity, I believe you should use the money you save on premiums for living life to the fullest. I’ll talk about this in more detail below.
So, no, you’re not wasting your money with term life insurance, even though you religiously pay your premiums, knowing full-well that there’s very little chance of ever receiving anything in return. That’s the way insurance should be!
If you research life insurance on the internet, you’ll find many websites that compare term and permanent life insurance. Most sites that make a compelling case for whole life or universal life insurance may be biased, in that they want to sell you permanent life insurance, which is much more profitable for them to sell compared to low-cost term life insurance.
For more detailed definitions of the different types of life insurance available, click on the link below:
Types of Life Insurance
Below are a few website articles that I believe offer a more unbiased opinion:
Suze Orman - Why It Pays To Review Your Life Insurance
Cash Value vs. Term Life Insurance
Term or Permanent Life Insurance? - Ask The Experts
Term or Whole Life?
Which Life Insurance is Best?
Couple should rejig insurance to reduce debt
The Great Debate - Term vs. Whole Life
ROP (return-of-premium) - A Better Life Insurance Policy?
Term Insurance - The Permanent Benefit
Remember, people have differing views and beliefs on the purpose of life insurance. So research the differing opinions to help you determine what type and what amount of life insurance is right for you.
The Exceptions To The Rule
Other than the two exceptions below, I believe that for estate planning purposes, most people usually do not need whole life or universal life insurance coverage as much as they may have been led to believe.
Disabled Child or Other Disabled Dependent Who Will Need Financial Support Throughout His or Her Lifetime
One specific estate planning situation where whole life insurance is completely appropriate is if you have a disabled dependent who will remain dependent on you throughout their lifetime. For this person, you need to have the financial resources available so that they will be properly cared for when you are no longer there to provide for them. If you do not already have sufficient assets to provide this, whole life insurance is a must.
To Fund A Buy-Sell Agreement If You Co-Own A Small Business
Another situation where whole life insurance is advisable is to fund a buy-sell agreement between partners or co-owners of a business if there is a possibility that the buyer may not have the cash required to uphold their end of the buy-sell agreement.
Estate Planning and Leaving a Legacy
As an overall risk management strategy, I believe that it is better to ensure that you have the right amount of life insurance coverage through a term life insurance policy. And then, you’re better off to use the money you save in premiums from buying term instead of whole life or universal life insurance and investing it separately. These separate investments can then be kept to pay any income taxes that become payable upon your death or they can be used at your complete discretion to pay for anything else you wish to do during your lifetime.
With term insurance, you’re paying less in premiums because you're only paying for the pure life insurance you need. You then have the opportunity to make conscious decisions about how you invest your money that otherwise would have gone to pay higher whole life or universal life premiums.
Now, it is easy to see the emotional appeal of whole life and universal life insurance. After all, who doesn’t want to leave their grandchildren a little something to remember them by? Why throw away your money into a term life insurance policy that most likely will not payout a red cent to your beneficiaries? Why not buy whole life or universal life where you get a guaranteed payout?
The thing to remember with whole life and universal life insurance is that you only get the insurance payout upon death. And this payout has probably been fully-funded by the additional premiums (compared to term life premiums) you’ve paid.
But, what if you want to help your children or grandchildren while you're still alive?
I believe that if you have achieved financial independence, why not enjoy your hard-earned wealth and share it with the people, the causes and the charities you care for most while you’re still around to enjoy the great feeling that comes with making a real difference in people’s lives. Is this not a better option than continuing to plow money into higher insurance premiums that will allow you to accomplish these same goals, but only after you’re gone?
Wouldn’t it be much more enjoyable to actually experience these special moments?
To actually feel the gratitude from your loved ones for helping them financially when they most needed your help. Especially if they are young families who may be struggling to make ends meet. Maybe you could help your children with a down payment on a home or help them save for your grandchildren's university education.
To actually see how much all that you’ve worked so hard to save and pass on is appreciated by the people you care for most – and by doing so, enabling them to enjoy a little more of what life has to offer. Maybe you would be able to help them enjoy some of life's little pleasures while your grandchildren are still young (and share the experience and build the bonds and memories that will last a life time). A family vacation with the children and grandchildren might just perfectly fit the bill.
Isn’t that what it’s all about?
These “giving” moments will be some of the most enjoyable experiences you’ll ever have. And they’ll be some of the very special memories you and your loved ones will cherish for the rest of your lives!
Wealth will eventually be passed on. Why deny yourself all the great feelings that come from giving?
It’s just not the same experience when your loved ones just get a cheque from your life insurance company. The magical moments that rightfully belong to you and your loved ones, never get shared and are lost forever. That’s not right!
Estate Planning and Income Tax
Whole life and universal life insurance are often offered as solutions to potential cash/liquidity problems that may arise for an individual’s estate if assets cannot or will not be transferred on a tax-deferred basis to a spouse.
Unless rolled over to a spouse, upon death, an individual’s final tax return must include capital gains based on the fair market value of all assets owned at time of death. Also, the entire remaining value of a person’s registered savings (RSP, RIF, etc) must be reported as income on the final tax return. This can result in a very large amount of income tax that must be paid to the government in the very near future. If the estate does not have the cash resources to pay the income tax, then assets may have to be sold to raise the cash required, and that may not have been the individual’s wish. He or she may have wanted to pass on specific assets to specific individuals.
I look at things in a different way when assessing this type of scenario to ensure that clients choose the right life insurance/risk management strategy.
The fact is, if you were to die unexpectedly, low-cost term life would have been the best insurance for you to own as it would have given you the most bang for your buck. And if you live longer than a normal life expectancy, all that the whole life or universal insurance will provide is a relatively lower-yielding savings vehicle, and you have to die before you can receive the cash.
Life insurance is not designed to provide people with a cash windfall.
I believe that if you’re considering whole life or universal life insurance as an estate planning solution, it’s essentially just a choice between paying now or paying later. But, the longer you live, the lower the actual rate of return on your investments (the additional premiums paid for a whole or universal life policy compared to a term life insurance policy) becomes.
Remember, the premiums people are required to pay for any type of life insurance are always based on probability (actuarial charts). One thing is for certain, the premiums collected, as a whole, by any insurance company (whether through premiums or through the earnings those premiums generate) must always be greater than what it pays out, as a whole, in the way of claims.
Again, life insurance is a zero-sum game – as a whole, a group of insured people will get out of it, a little bit less than what they put into it.
If you believe that you will live at least to what is considered a normal life expectancy, a whole life or universal life insurance policy cannot somehow magically provide a greater source of cash for your estate than you could have accumulated yourself had you saved the additional premiums as part of a separate savings plan.
Something else to think about: If people live to normal life expectancy, what assets do most of them usually own at the time of their death?
• They may own their home. They may own a family vacation home.
• They may have some savings outside their registered plans. They may have already spent or gifted away much of these savings (for example on things like family vacations, helping children with down payments, or donating to their favourite causes or charities).
• Their registered retirement savings may also be considerably depleted by now.
If their home is to be sold, the proceeds will be completely tax free and, in most cases, will be much more than sufficient to pay all income taxes owing.
Even family vacation property is often sold as it becomes too difficult for siblings to jointly own and agree upon how to equitably share the benefits and the responsibilities of joint ownership as they all may have different priorities, values and financial resources.
I wonder how many estates, where whole life or universal life insurance was purchased to protect against cash/liquidity concerns, actually ran into the anticipated cash crunch that was the basis for the purchase of the policy in the first place?
So, personally, I do not believe that cash concerns are as prevalent an issue for estates as one might be led to believe. And if they are not, then doesn’t what I’ve said above, under “Estate Planning and Leaving a Legacy”, about making the most of your wealth while you are still around to experience the difference it makes in the lives of those you love most, make even more sense?
How Permanent Insurance Works
What you must understand is this, with permanent insurance, part of the larger annual premium you pay goes towards paying the very same term insurance (pure life insurance) portion of the policy. It is only the additional amount you pay each year, that works, in a sense as a savings account that then guarantees an insurance payout upon your death.
Remember, all that permanent insurance is, is a term insurance policy with an investment component that gives you a conservative rate of return based on life expectancy. It is by no means, any type of magical investment vehicle. Remember, in the end, the insurance company must still collect more in total premiums (and the investment income earned on these premiums) than it pays out in total benefits.
Yes, you can get tax-deferred growth with a universal life policy, but then again, the downside is that you can’t do anything with this money until you’re dead. Well, you can, but if you withdraw the cash surrender value while you are still alive, the tax-treatment is much worse than what would have been the case had you just bought term life insurance and invested the savings (difference between the cost of term insurance and universal life insurance) separately. And there may be hefty fees to pay as well.
Now, the idea that one can "hide" investment income from the government has a very strong appeal to those who believe they are already paying too much income tax. While it's true that universal life insurance can be an attractive way to shelter investment earnings from taxation, this product is in no position to compete with the advantages offered by Registered Retirement Savings Plans (RRSPs). Money in an RRSP not only grows tax-free, but the contribution can be fully deducted from income — not so with universal life policies, which shelters only investment income.
Personally, I do not believe that anyone with debt should be buying life insurance that comes with an investment component. Only after you are financially independent (you've maxed out on your RRSPs, RESPs, and IPP contributions and fully funded your retirement with sufficient additional non-registered savings) should you even consider this option. And, even then, you might first want to give wealth transfer and philanthropy (which is often why many of these permanent insurance policies are taken out in the first place, isn’t it) some serious thought.
Why Access To A Cash-Surrender Value Is Really A Non-Issue:
(again, these are only my personal beliefs - you may or may not agree)
• The need to access the cash surrender value should never be a reality, because permanent insurance should only be an option if you’ve already achieved financial independence, therefore, you should never need to borrow against the cash-value.
• You need to remember that you don't actually get to use your savings interest-free. You only get to use the cash-surrender value as collateral for a loan, on which you pay interest. And, if the loan is still outstanding at the time of your death, the outstanding amount is deducted from the face value of the insurance policy payout.
• I don’t believe that it is prudent financial planning to own a whole life or universal life policy if you still have a mortgage outstanding on your principal residence. Yet, if your principal residence is mortgage free, in an emergency, you could always borrow against your home, so access to the cash surrender value again becomes a non-issue. And the rate of interest charged on a loan against your home would most likely be significantly less that the rate charged on a loan against the cash-surrender value of your insurance policy.
Permanent Insurance As A Forced-Savings Strategy – My Thoughts
One thing to keep in mind is that with a whole life insurance policy is that if you were to die, your beneficiary would most likely only receive the face value of the policy. The terms of the policy usually state that the beneficiary is not entitled to the cash surrender value that has build up inside the policy.
Also, if you are considering permanent insurance as a forced-savings strategy, it’s a good idea to remember that people who have trouble saving to begin with aren't likely to continue shelling out high premiums for insurance.
Roughly 12 percent of those who buy whole or universal life policies allow them to lapse within the first year, according to Limra International, an insurance research firm. An estimated 40 percent drop their policies during the first 10 years, usually because of the high premiums, says Robert Hunter, director of insurance for the Consumer Federation of America. Depending on how soon the policy lapses, consumers lose their whole investment or get back a small fraction of the money invested.
But even if you diligently keep paying the premiums, the fees involved may result in this strategy not being the most efficient way of saving.
Over the first 10 years of a policy, the sales and related costs can equal more than a year's worth of premiums, or several thousand dollars, says James Hunt, an actuary affiliated with the Consumer Federation. Moreover, many cash-value policies carry back-end loads and fees -- typically lasting 10 to 15 years, but sometimes 20 -- that lessens the cash you receive if you opt to surrender the policy.
And if you do surrender the policy, in effect taking out the built-up cash, you'll pay income taxes at higher-than-ordinary income tax rates.
In Conclusion:
Before you purchase any life insurance, do your homework and make sure that you purchase the right type of insurance policy and the right amount of coverage based on your individual circumstances. Being properly and adequately insured is critically important and really is a must. What you don’t want is to be over-insured, under-insured, or improperly insured.
I'll say this, one last time, people have differing views and beliefs on the purpose of life insurance. So research the differing opinions to help you determine what type and what amount of life insurance is right for you.
Life insurance plays an important role in many of the comprehensive financial plans and investment strategies I design and work with clients to implement.
My approach to selling life insurance is pretty straight forward; if it's needed, always provide the most appropriate type, and amount, of life insurance coverage, at the lowest cost possible.
Go confidently in the direction of your dreams! Live the life you’ve imagined.
Live! Love! Laugh! Learn! Leave a Legacy!
The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
I'm guessing, they were not too pleased with one of their independent advisors going rogue on them (I was going rogue, but in the good sense, if there can be such a thing as a good rogue), and they kindly rejected my request.
Now, these opinions are just that, my own personal opinions in regards to life insurance. Not everyone (or anyone, for that matter), may see things the same way.
So, do your own research, know both sides of the life insurance debate, and then draw your own conclusions; that is the best advice I can give you when it comes to life insurance.
Here now, is what I asked them to approve back in April 2007:
(you can decide for yourself whether this is good advice or not)
____________________________________________________________________
My core belief about life insurance, or any type of insurance for that matter, is that its main purpose should be to protect the insured against a very highly unlikely event that, if it were to occur, would cause significant financial hardship to the insured or to his or her dependents.
If the event (death, disability, critical illness, need for long-term care) would not cause significant financial hardship, insurance is not required.
If an event IS HIGHLY LIKELY to occur, I do not believe that this type of risk can be economically transferred to an insurance company. The cost of insurance would just be too high.
With an event that is highly likely to occur, people must take personal responsibility to protect themselves against its financial impact by regularly setting aside savings and building up a personal financial reserve so that they have a sufficient emergency fund that will carry them through these types of situations if they were to occur.
You can read more about my beliefs on this topic under the Disability, Critical Illness, and Long-Term Care Insurance web page.
Now back to life insurance.
Where I may differ from others is in my belief that term life insurance is usually the only type of life insurance most people need, if they need life insurance at all. Very few people actually need permanent life insurance (whole life or universal life).
Because the likelihood of unexpectedly dying young is so low, people should only have to part with a very small amount of their hard-earned money to protect themselves against such a financial catastrophe. The cost of life insurance should be relatively minimal because the probability of collecting on the insurance policy is highly unlikely (and that’s a good thing).
One thing to remember is that insurance is a zero-sum game. What people pay in the way of premiums goes towards three things:
1. paying for the company’s operating costs (including salaries, bonuses, and commissions)
2. providing an adequate return on investment for the company’s shareholders, and
3. paying for claims
Insurance products are usually priced to take all of the above into account. So a fair amount of the premiums that people pay go towards covering operating costs and providing a reasonable profit for the shareholders of the company. The life insurance company does serve an extremely useful purpose: how else would we go about getting life insurance coverage we actually need?
Now, Who Needs Term Life Insurance?
Unfortunately, the reality is, life insurance is a necessity for a lot of people.
If you have someone who is financially dependent upon you, you probably need term life insurance.
Ask yourself:
Would my death cause financial hardship for anyone I care for?
Would my family be able afford to have the life experiences, the memorable moments and the opportunities that I look forward to being able to provide for them (family vacations, extra-curricular activities, university costs, etc.)?
Your responsibility is to make sure that you have the right amount of the right type of life insurance coverage and to keep the cost as low as possible. You don’t want to be over-insured, under-insured or improperly insured.
I whole-heartedly believe in term life insurance because, to me, it makes complete sense. Now, there are a few rare occasions where whole life or universal life is a better risk-management solution for the client, but I believe that these are the exceptions to the rule, and will cover off these exceptions a little bit later.
For most people, after they reach a certain age, while still emotionally devastating to their loved ones, their death would no longer result in financial hardship for anyone. I believe, that as soon as financial hardship is no longer a concern, and assuming you’re still fairly healthy (your doctor sees no reason why you wouldn’t have at least a normal life expectancy), life insurance, of any kind, is no longer needed, so I would then recommend that clients cancel their term life insurance policies. That is why term life insurance is the perfect solution for most people. It’s cheap, and you only pay for it as long as you need it.
When life insurance is no longer a necessity, I believe you should use the money you save on premiums for living life to the fullest. I’ll talk about this in more detail below.
So, no, you’re not wasting your money with term life insurance, even though you religiously pay your premiums, knowing full-well that there’s very little chance of ever receiving anything in return. That’s the way insurance should be!
If you research life insurance on the internet, you’ll find many websites that compare term and permanent life insurance. Most sites that make a compelling case for whole life or universal life insurance may be biased, in that they want to sell you permanent life insurance, which is much more profitable for them to sell compared to low-cost term life insurance.
For more detailed definitions of the different types of life insurance available, click on the link below:
Types of Life Insurance
Below are a few website articles that I believe offer a more unbiased opinion:
Suze Orman - Why It Pays To Review Your Life Insurance
Cash Value vs. Term Life Insurance
Term or Permanent Life Insurance? - Ask The Experts
Term or Whole Life?
Which Life Insurance is Best?
Couple should rejig insurance to reduce debt
The Great Debate - Term vs. Whole Life
ROP (return-of-premium) - A Better Life Insurance Policy?
Term Insurance - The Permanent Benefit
Remember, people have differing views and beliefs on the purpose of life insurance. So research the differing opinions to help you determine what type and what amount of life insurance is right for you.
The Exceptions To The Rule
Other than the two exceptions below, I believe that for estate planning purposes, most people usually do not need whole life or universal life insurance coverage as much as they may have been led to believe.
Disabled Child or Other Disabled Dependent Who Will Need Financial Support Throughout His or Her Lifetime
One specific estate planning situation where whole life insurance is completely appropriate is if you have a disabled dependent who will remain dependent on you throughout their lifetime. For this person, you need to have the financial resources available so that they will be properly cared for when you are no longer there to provide for them. If you do not already have sufficient assets to provide this, whole life insurance is a must.
To Fund A Buy-Sell Agreement If You Co-Own A Small Business
Another situation where whole life insurance is advisable is to fund a buy-sell agreement between partners or co-owners of a business if there is a possibility that the buyer may not have the cash required to uphold their end of the buy-sell agreement.
Estate Planning and Leaving a Legacy
As an overall risk management strategy, I believe that it is better to ensure that you have the right amount of life insurance coverage through a term life insurance policy. And then, you’re better off to use the money you save in premiums from buying term instead of whole life or universal life insurance and investing it separately. These separate investments can then be kept to pay any income taxes that become payable upon your death or they can be used at your complete discretion to pay for anything else you wish to do during your lifetime.
With term insurance, you’re paying less in premiums because you're only paying for the pure life insurance you need. You then have the opportunity to make conscious decisions about how you invest your money that otherwise would have gone to pay higher whole life or universal life premiums.
Now, it is easy to see the emotional appeal of whole life and universal life insurance. After all, who doesn’t want to leave their grandchildren a little something to remember them by? Why throw away your money into a term life insurance policy that most likely will not payout a red cent to your beneficiaries? Why not buy whole life or universal life where you get a guaranteed payout?
The thing to remember with whole life and universal life insurance is that you only get the insurance payout upon death. And this payout has probably been fully-funded by the additional premiums (compared to term life premiums) you’ve paid.
But, what if you want to help your children or grandchildren while you're still alive?
I believe that if you have achieved financial independence, why not enjoy your hard-earned wealth and share it with the people, the causes and the charities you care for most while you’re still around to enjoy the great feeling that comes with making a real difference in people’s lives. Is this not a better option than continuing to plow money into higher insurance premiums that will allow you to accomplish these same goals, but only after you’re gone?
Wouldn’t it be much more enjoyable to actually experience these special moments?
To actually feel the gratitude from your loved ones for helping them financially when they most needed your help. Especially if they are young families who may be struggling to make ends meet. Maybe you could help your children with a down payment on a home or help them save for your grandchildren's university education.
To actually see how much all that you’ve worked so hard to save and pass on is appreciated by the people you care for most – and by doing so, enabling them to enjoy a little more of what life has to offer. Maybe you would be able to help them enjoy some of life's little pleasures while your grandchildren are still young (and share the experience and build the bonds and memories that will last a life time). A family vacation with the children and grandchildren might just perfectly fit the bill.
Isn’t that what it’s all about?
These “giving” moments will be some of the most enjoyable experiences you’ll ever have. And they’ll be some of the very special memories you and your loved ones will cherish for the rest of your lives!
Wealth will eventually be passed on. Why deny yourself all the great feelings that come from giving?
It’s just not the same experience when your loved ones just get a cheque from your life insurance company. The magical moments that rightfully belong to you and your loved ones, never get shared and are lost forever. That’s not right!
Estate Planning and Income Tax
Whole life and universal life insurance are often offered as solutions to potential cash/liquidity problems that may arise for an individual’s estate if assets cannot or will not be transferred on a tax-deferred basis to a spouse.
Unless rolled over to a spouse, upon death, an individual’s final tax return must include capital gains based on the fair market value of all assets owned at time of death. Also, the entire remaining value of a person’s registered savings (RSP, RIF, etc) must be reported as income on the final tax return. This can result in a very large amount of income tax that must be paid to the government in the very near future. If the estate does not have the cash resources to pay the income tax, then assets may have to be sold to raise the cash required, and that may not have been the individual’s wish. He or she may have wanted to pass on specific assets to specific individuals.
I look at things in a different way when assessing this type of scenario to ensure that clients choose the right life insurance/risk management strategy.
The fact is, if you were to die unexpectedly, low-cost term life would have been the best insurance for you to own as it would have given you the most bang for your buck. And if you live longer than a normal life expectancy, all that the whole life or universal insurance will provide is a relatively lower-yielding savings vehicle, and you have to die before you can receive the cash.
Life insurance is not designed to provide people with a cash windfall.
I believe that if you’re considering whole life or universal life insurance as an estate planning solution, it’s essentially just a choice between paying now or paying later. But, the longer you live, the lower the actual rate of return on your investments (the additional premiums paid for a whole or universal life policy compared to a term life insurance policy) becomes.
Remember, the premiums people are required to pay for any type of life insurance are always based on probability (actuarial charts). One thing is for certain, the premiums collected, as a whole, by any insurance company (whether through premiums or through the earnings those premiums generate) must always be greater than what it pays out, as a whole, in the way of claims.
Again, life insurance is a zero-sum game – as a whole, a group of insured people will get out of it, a little bit less than what they put into it.
If you believe that you will live at least to what is considered a normal life expectancy, a whole life or universal life insurance policy cannot somehow magically provide a greater source of cash for your estate than you could have accumulated yourself had you saved the additional premiums as part of a separate savings plan.
Something else to think about: If people live to normal life expectancy, what assets do most of them usually own at the time of their death?
• They may own their home. They may own a family vacation home.
• They may have some savings outside their registered plans. They may have already spent or gifted away much of these savings (for example on things like family vacations, helping children with down payments, or donating to their favourite causes or charities).
• Their registered retirement savings may also be considerably depleted by now.
If their home is to be sold, the proceeds will be completely tax free and, in most cases, will be much more than sufficient to pay all income taxes owing.
Even family vacation property is often sold as it becomes too difficult for siblings to jointly own and agree upon how to equitably share the benefits and the responsibilities of joint ownership as they all may have different priorities, values and financial resources.
I wonder how many estates, where whole life or universal life insurance was purchased to protect against cash/liquidity concerns, actually ran into the anticipated cash crunch that was the basis for the purchase of the policy in the first place?
So, personally, I do not believe that cash concerns are as prevalent an issue for estates as one might be led to believe. And if they are not, then doesn’t what I’ve said above, under “Estate Planning and Leaving a Legacy”, about making the most of your wealth while you are still around to experience the difference it makes in the lives of those you love most, make even more sense?
How Permanent Insurance Works
What you must understand is this, with permanent insurance, part of the larger annual premium you pay goes towards paying the very same term insurance (pure life insurance) portion of the policy. It is only the additional amount you pay each year, that works, in a sense as a savings account that then guarantees an insurance payout upon your death.
Remember, all that permanent insurance is, is a term insurance policy with an investment component that gives you a conservative rate of return based on life expectancy. It is by no means, any type of magical investment vehicle. Remember, in the end, the insurance company must still collect more in total premiums (and the investment income earned on these premiums) than it pays out in total benefits.
Yes, you can get tax-deferred growth with a universal life policy, but then again, the downside is that you can’t do anything with this money until you’re dead. Well, you can, but if you withdraw the cash surrender value while you are still alive, the tax-treatment is much worse than what would have been the case had you just bought term life insurance and invested the savings (difference between the cost of term insurance and universal life insurance) separately. And there may be hefty fees to pay as well.
Now, the idea that one can "hide" investment income from the government has a very strong appeal to those who believe they are already paying too much income tax. While it's true that universal life insurance can be an attractive way to shelter investment earnings from taxation, this product is in no position to compete with the advantages offered by Registered Retirement Savings Plans (RRSPs). Money in an RRSP not only grows tax-free, but the contribution can be fully deducted from income — not so with universal life policies, which shelters only investment income.
Personally, I do not believe that anyone with debt should be buying life insurance that comes with an investment component. Only after you are financially independent (you've maxed out on your RRSPs, RESPs, and IPP contributions and fully funded your retirement with sufficient additional non-registered savings) should you even consider this option. And, even then, you might first want to give wealth transfer and philanthropy (which is often why many of these permanent insurance policies are taken out in the first place, isn’t it) some serious thought.
Why Access To A Cash-Surrender Value Is Really A Non-Issue:
(again, these are only my personal beliefs - you may or may not agree)
• The need to access the cash surrender value should never be a reality, because permanent insurance should only be an option if you’ve already achieved financial independence, therefore, you should never need to borrow against the cash-value.
• You need to remember that you don't actually get to use your savings interest-free. You only get to use the cash-surrender value as collateral for a loan, on which you pay interest. And, if the loan is still outstanding at the time of your death, the outstanding amount is deducted from the face value of the insurance policy payout.
• I don’t believe that it is prudent financial planning to own a whole life or universal life policy if you still have a mortgage outstanding on your principal residence. Yet, if your principal residence is mortgage free, in an emergency, you could always borrow against your home, so access to the cash surrender value again becomes a non-issue. And the rate of interest charged on a loan against your home would most likely be significantly less that the rate charged on a loan against the cash-surrender value of your insurance policy.
Permanent Insurance As A Forced-Savings Strategy – My Thoughts
One thing to keep in mind is that with a whole life insurance policy is that if you were to die, your beneficiary would most likely only receive the face value of the policy. The terms of the policy usually state that the beneficiary is not entitled to the cash surrender value that has build up inside the policy.
Also, if you are considering permanent insurance as a forced-savings strategy, it’s a good idea to remember that people who have trouble saving to begin with aren't likely to continue shelling out high premiums for insurance.
Roughly 12 percent of those who buy whole or universal life policies allow them to lapse within the first year, according to Limra International, an insurance research firm. An estimated 40 percent drop their policies during the first 10 years, usually because of the high premiums, says Robert Hunter, director of insurance for the Consumer Federation of America. Depending on how soon the policy lapses, consumers lose their whole investment or get back a small fraction of the money invested.
But even if you diligently keep paying the premiums, the fees involved may result in this strategy not being the most efficient way of saving.
Over the first 10 years of a policy, the sales and related costs can equal more than a year's worth of premiums, or several thousand dollars, says James Hunt, an actuary affiliated with the Consumer Federation. Moreover, many cash-value policies carry back-end loads and fees -- typically lasting 10 to 15 years, but sometimes 20 -- that lessens the cash you receive if you opt to surrender the policy.
And if you do surrender the policy, in effect taking out the built-up cash, you'll pay income taxes at higher-than-ordinary income tax rates.
In Conclusion:
Before you purchase any life insurance, do your homework and make sure that you purchase the right type of insurance policy and the right amount of coverage based on your individual circumstances. Being properly and adequately insured is critically important and really is a must. What you don’t want is to be over-insured, under-insured, or improperly insured.
I'll say this, one last time, people have differing views and beliefs on the purpose of life insurance. So research the differing opinions to help you determine what type and what amount of life insurance is right for you.
Life insurance plays an important role in many of the comprehensive financial plans and investment strategies I design and work with clients to implement.
My approach to selling life insurance is pretty straight forward; if it's needed, always provide the most appropriate type, and amount, of life insurance coverage, at the lowest cost possible.
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The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
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