The U.S. Health Insurance System Sucks

United Health Care (UHC) is my current health insurance company, through a private policy bought through a broker.

Recently, UHC said they were getting out of Obamacare policies.  This was attributed to costs, but I just found out why - it is due to incompetence and bad service.

They cancelled the type of policy I bought in 2015, and tried to auto-enroll me in a more expensive policy.  By the way, I got no claims paid in 2015 due to my deductible.  I was paying over $650 a month for coverage.

I tried to cancel the auto-enrollment via fax.  I sent an application for a new UHC policy to my broker who forwarded it to them.

By letter and phone, I was told:

1. I am auto enrolled in a new expensive plan.
2. I am not auto enrolled in the new plan
3. I am enrolled in the new plan
4. My old insurance is cancelled.
5. My new insurance application is being processed
6. My new insurance application needs payment information (it was included in the application)
7. They need payment confirmation (whatever that is) for my new plan.
8. I tried phoning their number 4 times, and they hung up on me due to call volume
9. I cannot do anything online except deal with my old 2015 policy.
10. Finally, they accepted my call and I was on hold for 90 minutes trying to update the payment information, and then I finally got them to cancel the auto-renewed plan.
11. But the premium is $100 more than I paid last year, and the coverage is less.  I will likely spend at least $10,000 on health insurance and health costs (copays, deductibles..) in 2016.  I probably will not even get a tax deduction for this.
12. It only took me about 3-4 hours on the phone and 2 hours on the computer and an hour filling out forms to get enrolled.

The Canadians have it right with government provided health insurance.  It costs less per person as a percent of GDP, and Canadians live longer.  No time and money wasted on all the bureaucracy of US private health insurance.

There is No Santa Claus but Trump is for Real

I am sure that all expatriates living in the USA are running into this problem.  You go home for the holidays and all your relatives and friends want to discuss is Trump.

• Does he really mean what he says?
• How much support does he have?
• What do you think?

Unfortunately, you have to explain that yes, he is for real, he has supporters (I know some), and he represents the worst of America.  Then you try and change the subject to something more pleasant like your recent colonoscopy or the service on US airlines.

USA Falls Behind Brazil?

In Soccer (Football) yes, but in economic performance??

A recent Pew study in the USA found that the middle class is now in the minority, 49.9% of the population.  Meanwhile, in Brazil, the middle class is around 50%+.  What the F happened?!

Of course the easy thing to do is blame Obama.  He is responsible for everything including the poor record of the New York Giants.  However, it is pretty clear that this started under President Ford, and continued under Carter, Reagan, H Bush, Clinton, W Bush, and Obama.  So what are my theories?

1. The USA has a poor record on education, and typically ranks below average on the performance of its students versus other countries.  This means a less educated less skilled work force.  Why?  Governments in the US do not organize or fund education properly and the culture does not value education.
2. Corporations figured out how to send most low-medium skill manufacturing work offshore to Mexico, China..  This means fewer middle-class-pay jobs available to the poorly trained workforce.  The only low skill jobs left are those that cannot be offshored, like serving at McDonalds or mopping the floor at the office.  Illegal immigration has contributed to keeping the wages of these jobs at the poverty level.
3. Taxes became less progressive over time, allowing the rich to keep more of their wealth, squeezing the middle class.  Health care is expensive and is not provided by the government, so the middle class must pay these high costs themselves.
4. No safety net is available in the US.  If you are middle class and run into problems, like the loss of a job, a serious illness, or an accident, you are on your own.  Unemployment insurance is very low, there is no help with medical costs until you are impoverished, and there are few government programs to help.  Often, people never recover from the setback and remain in poverty for the rest of their lives.

Increasing American Democracy

The USA likes to think that it is a model democracy, the best in the world.  Unfortunately, I do not agree with this view.  The US has a number of undemocratic characteristics:

1. It is constitutional to redraw district boundaries to benefit your party, i.e. gerrymandering.  This technique is used to increase the number of representatives of your party and effectively devalue or eliminate the votes of citizens for the other party.  You can take a state that has a slight majority for party B and 10 districts and elect 8 representatives of Party B and 2 Party A representatives.  Just draw the boundaries so Party A's voters are concentrated in two districts.  Check out Figure 1 below for some gerrymandered districts.
2. There is effectively no limit on the money raised to support a candidate due to the "Citizens United" ruling by the Supreme Court.
3. People seem to vote blindly for incumbents, even though they hate Washington and Congress in general.  This I cannot explain.
4. There are ways to remove citizens' voting rights by demanding tests that they cannot pass, like having a government-provided picture ID.  My niece does not have such an ID as she does not drive and has no passport to my knowledge.
5. The only thing the two parties agree on is that there should not be a third party.  They make sure that no third party will ever take hold in the USA.  So we have a situation today where the two parties are polarized left and right, socially and economically, with no moderate alternative.

Figure 1: Gerrymandered Districts

So how to improve on this less-than-good democracy?

My idea is that we should combat gerrymandering and the lack of a third party by voting in the other party's primary.  If I am a Democrat in a Gerrymandered district that favors Republicans (and I am), then I should vote in the Republican primary for the district representative.  I will vote for a more centerist candidate than your anti-abortion, anti-immigrant, anti-Muslim, anti-gun control, anti-Fed, anti-tax, anti-union, anti-Obamacare Republican voter.  Maybe that more moderate centerist candidate becomes the Republican candidate, and then they win the election through Gerrymandering.  Now I have a more moderate representative than I have today.

Trump Explained to Canadians

I get a lot of questions and comments from friends and relatives in Canada about Trump and his pronouncements.  Let me say first that I could not stand the guy before he started his campaign and I like him less now.

But who is Trump and what is going on in the USA?

It is easy to think of Trump as a political Don Cherry with his hair substituting for the outlandish suits.  But it's not funny and there is no hockey game to bracket his outbursts.

Trump is considered by many Americans to be an attention-hog with a big mouth, a bully, rude, racist, with a thin skin, he loves to win, does not think before opening his mouth, and plays fast and loose with the truth.  Like me, he is entitled to say and do what he wants within the law.  He is a classic demagogue, which I looked up in the dictionary and it should have his picture next to the description:

a person, especially an orator or political leader, who gains power and popularity by arousing the emotions, passions, and prejudices of the people.

Why do people support him?  The polls show that the bulk of his support comes from older less educated white people, but others do support him.  I posit that they are mostly scared and he seems like the big leader on a white horse who is going to fix things.  "Make America Great Again" means we are scared and need someone to fix things.

There are a lot of scared white people in the USA today.

• Well paying manufacturing jobs moved to China and Mexico, leaving poorly educated people few options for a middle class lifestyle
• A lot of folks lost money in the dot com crash, the housing crash, and the great recession.
• The US media loves to run stories that scare people: mass shootings, terrorism, disease, and the like.  It sells newspapers and gets people to watch TV news.  The reality is that crime is down, lifespans are increasing, and technology is making life easier, but who needs facts when you can be scared by some media commentator?
• A lot of folks did not save for retirement and they are getting to retirement age.  It does not look good for them.  Note that Trump is the only Republican candidate saying he won't touch Social Security and Medicare, which is all these people for their retirement.
• A black guy got elected president, which horrifies a lot of people who are silent racists.
• Non-whites are doing well.  Asian immigrants are doing well in technology, the illegals are working hard and building solid lives for their family, blacks are making slow progress (and Obama is President), and a lot of whites are falling behind.  Middle income white lifespans are decreasing.
• Military power is less important and less useful.  The US has lost a few wars lately in spite of spending more on the military than the next 10 countries combined.  Meanwhile, the real field of battle is economic, where China and other countries are kicking ass.
• The US has lost a lot of its courage as evidenced by "helicopter parents" who want to protect their kids and themselves from falling off bikes, losing a baseball game, or having some person who is not white or Christian from another country pass the screening and move to the US, become a terrorist and then go to their favorite mall and shoot them while they are ordering a soy sugar free peppermint spice extra hot latte.  Never mind my neighbor up the street with the NRA stickers on his pickup, Tea Party vanity license plate, and the permanent scowl on his face, he is harmless.
• These Trump supporters long for the good old days.  Yet they forget that the good old days (50's and 60's) had segregation and race riots, domestic terrorism (remember the Weathermen?), a lost war in Viet Nam, the threat of annihilation by the USSR, and half of Europe and all of China under communist oppression. We had some great music back then, but also an awful lot of problems.

But the USA will come to its senses and Trump will go back to being a reality TV star like the Kardashians.  We only hope he does not follow their lead and make sex tapes.

This blog is protected by the First Amendment of the US Constitution, which guarantees free political speech.

Modern Science Has Cured Dandruff?

In my last post, I reflected on Americans fear of terrorists, refugees, and Ebola.  However, it seems that modern science has defeated the previously feared disease of DANDRUFF.

Back in the 60's and 70's, the golden age of Television, dandruff was one of the most feared conditions in America.  We were bombarded with commercials from Resdan, Head and Shoulders, and Selsun Blue claiming they could cure dandruff.  Men in black turtlenecks were shown being dissed by sexy women because of the visible flakes of dandruff - they seemed to be the size of potatoe chips.  This dandruff disease was rampant, and only the advertised solution would work, check out a commercial below:

Today, we no longer fear the dandruff plague, as I never see any commercials for dandruff shampoo.  Clearly we have won this scientific battle and the new commercials are all about prescriptions for urinary incontinence, erectile disfunction, and constipation from taking too many opioids (the dreaded OIC!).

Americans Love To Be Frightened

Land of the free, home of the brave?  Yes to the former, not so sure about the latter.

The media has again gone nuts spreading fear, because fear sells in America.  The news is full of coverage of the Paris tragedy, a valid subject.  It was a terrible and horrible incident.  But on top of that, every news anchor is saying, in a "concerned tone":

• Three flights had to land because of terrorist threats - except it is always a crank who calls these in.  Can you think of a situation where a terrorist put a bomb on a plane and warned about it?
• The terrorists released a threatening video with some old shots of Times Square.  Great!  The terrorists can make a video, that certainly frightens the heck out of me.
• The terrorists infiltrated an airport in another country with an unstable government on another continent (Egypt) and planted a bomb in a soda can that could be detected by American security screening.  Heavens!  I will never fly again!
• Terrorists may wait out and pass the 24 month screening and enter America as refugees!  The last 10 or so terrorist incidents in the US (Muslim and Right Wing) have all been perpetrated by native born Americans with nutty ideas.  We photograph every single piece of mail delivered in the USA, we monitor the whole Internet, we monitor all international phone calls, we lock people up for years without trial in Guantanamo, we fingerprint and photograph everyone entering the country, we have secret terrorist courts where you can get a warrant on a person if they don't change their kitty litter every week, we have more guns than people in the country, and we fear terrorism from some refugee who sat in a camp for 24 months waiting for a visa??!!

I also recall the Ebola crisis, where no American died, and the TV anchors covered the bowel movements of every single one of the four people who caught Ebola.  Fox spent a lot of time talking about banning people who had traveled to Africa.  There was even coverage of citizens saying "we shouldn't let anyone into the country!"

The only difference between the "mainstream media" (ABC, NBC, CBS, PBS) and the right wing media (Fox), is that the mainstream just concentrates on fear, and the right wingers concentrate on fear, hatred, and blame Obama for overything.

I would also point out that twice as many people were murdered so far this year in Baltimore than were killed in Paris.  17 US citizens were killed by terrorism worldwide in 2011, 29 were killed by lightning in the same year.

What is going to happen when we have something really important to worry about, like a real war, "the big one" earthquake, or Yellowstone erupting, are we going to have to put Valium in the water supply so people don't die of fear?

Credit Card Fraud - Are the New Chip Cards Working?

Pardon the long interval since my last post.  Between vacation, family commitments, and just plain laziness, I have neglected my blog.

On the vacation front, we went to Germany and Northern Italy, which were very nice.  A few observations:

• While we were touring wineries and eating the local ham and salami in Italy, it was announced that processed/cured meats and alcohol are carcinogens.  It did not alarm me as I did not see large tumors protruding from the backsides of the Italians and Germans in the streets.
• These areas are great values.  Every time we had a meal, we looked at the bill and compared it to Northern Virginia.  We could have a gourmet meal with a bottle of good wine for about the same price as the local Virginia restaurant that just opened in a converted IHOP location (I am not kidding).
• No sign of migrants, even around the train station in Munich. 
• The Europeans are shocked by Trump and his lunacy.  They see him as the quintessential ugly American - ignorant, loudmouthed, prejudiced, rich, with a squirrel on his head masquerading as hair.  I explained that it was all about the ratings for the TV Networks.
• Airport security in Italy leaves a lot to be desired. 

No one seemed to have a problem with my absence from my consulting job, so that was good.  Consulting does seem to be the ideal second career for someone like me.

While in Europe, we got to use our new chip-enabled credit cards.  They worked well there, but here in the US, despite all the deadlines, I have used the chip functionality exactly twice.  The readers are at the stores, but hardly any of them are enabled.  On top of that, we don't used a PIN with the card, so there is no protection against stolen cards.  I think the credit card companies and merchants are having a dispute and this is holding up usage and the addition of a PIN.  Perhaps they are watching Congress and think that argument and inaction are the best ways to resolve a dispute?

Ripping Your Old Vinyl to the Computer

If you are like me, you have a lot of old vinyl records in the basement from your stereo-days of the 60's and 70's.  It also turns out that vinyl records are actually better sound quality than MP3s (who knew?).

How to turn that treasured vinyl past into a digital form like FLAC (lossless encoding) or MP3 for use on your I-thingy?

It turns out that it is not too hard or expensive, but a little tedious.

Step 1

Buy a USB turntable or get out that old 70 vintage turntable like my old Pioneer PL-516.  If you buy a USB turntable, you can skip forward to step 3.  If you pull out the old turntable, you first need to get it up and running.  

If you need a needle, go to turntableneedles.com.

If you need a belt, go to ebay.com or turntableneedles.

Amazon.com also has parts.

Step 2

The output from your old turntable is unuseable as is, you a phono pre-amp.  Luckily, you can buy cheap good pre-amps on site like Amazon.com.  I used this pre-amp: PYLE-PRO PP444 Ultra Compact Phono Turntable Preamp.

Wire it up as shown in the following picture.

Step 3

Hook up your USB or old turntable up to your PC.  Download audacity software which is free from the following location: link.  Install the program, open it up, and try a record.  Hit the record button in audacity.  You should hear audio from your speakers and see equalizer movement.  

If not, check your turntable by plugging headphones into the pre-amp.  If this works, the pre-amp and turntable are fine.  The move to the PC.  Make sure that you have selected the MIC input, check the audio settings, check the microphone settings.

If you have a poor record, one that got scratched during that all night party when Fred got drunk and bumped the stereo, turn on the audacity noise reduction.

Step 4

You should now be able to record your vinyl, enjoy!  Some photos of my setup are shown below.

The old Pioneer turntable

Pyle pre-amp

audacity software

Why I Don't Use Google Search

Google is by far the most popular search engine, why wouldn't I use it?  They claim that they will not evil, so what is not to like?  Normally, I have no problem using popular products made by large corporations, but in this case, I avoid Google Search, and am trying to reduce my use of other Google Products.

What are my concerns?

1. Google has a worldwide stranglehold on search, the most used function on the Internet.  They are quite secretive about what they do and how they do it.  They offer search for free in return for showing you advertisements and using your personal data.  Why do certain stores and sites get listed at the top, the most profitable  position?  We don't know.  Does Google "blackball" sites and not show them or put them way down the list?  We don't know.
2. Google has a worldwide stranglehold on self-produced video with Youtube.  A lot of people now make their living or support their charities with the money Google pays to put ads on their videos.  One charity I followed (Rise Up Society) operates in Africa and tries to cure people of Jiggers, a nasty parasite.  They produced their own homemade videos with cheap cameras and made money that they used to buy supplies like scalpels, disinfectant, gloves.  They had tens of thousands of followers who admired their work.  All of a sudden, their channel was removed for unspecified reasons.  I have seen this before, removal of a channel for mysterious reasons.  Luckily, one of their followers was an influential person in Silicon Valley and he intervened with higher ups at Google that he knew personally.  If not for this person, this poor charity would be back struggling for donations with no access to Youtube.
3. Google reads your mail and uses the info to target you with ads.  Everyone is up in arms about the NSA but Gmail users are quite happy to have all of their mail scanned by Google.
4. Google knows a lot about you, which you can find at this link.  Some of it is pretty personal and creepy, like recording your voice if you use voice search and recording your locations and showing you a timeline of where you were, for how long, what pictures you took, etc.
5. Today, there are sites which have been hacked, like Ashley Madison, and sites which will be hacked, like Google.  What happens when they are hacked and all your info is stolen?
6. Google uses super-creative tax tricks to pay little or no taxes to foreign governments (2.6% to the UK on $5B in revenue). The normal UK tax rate is 28%.
7. The terms of use of some of their services are pretty evil.  They can use your content to promote their services.  They can terminate a service or deny a service to you at their sole discretion.  For example, based on the Blogger terms of service, they could take exception to this posting and ban me from this service.  I would have no way to deal with this other than getting a lawyer and suing them in court.
8. Google operates according to the culture of Silicon Valley.  In the past, this culture was defined by a bunch of nerds who valued innovation and new technology.  The "new and improved" Silicon Valley values money above all else and the freedom to do whatever they want, screw everyone else, in essence radical libertarianism.  One billionaire backer of Facebook wants to create a new offshore country with "no welfare, looser building codes, no minimum wage, and few restrictions on weapons"
9. There are other good search engines out there.  Bing works well and is especially good at image searches and they give reward points for your searches.  I get at least $5-$10 a month in Amazon gift card credits using Bing.
10. Lastly, Google right now has some nice people running it, and they seem to try to be benevolent.  But as we all know, corporate leadership changes, especially if the quarterly results are bad, witness Yahoo, AOL, etc.  What happens when some nasty "turnaround guy" ends up as head of Google and decides he is going to "monetize their information"?

So I am trying to reduce the clutches of Google on my information, my searches, and my business.  Let's see what happens.

Don't Panic

As the Dow plunges and the 24/7 news channels spout stories of doom, don't panic and sell stocks.

Presumably, your stock mutual funds and ETFs are part of a saving plan for college and/or retirement and are part of a diversified portfolio which includes bonds, international stocks, and cash.  Unless you need the money tomorrow for retirement, why sell now?

• It has been proven time and again that you cannot time the market (buy low, sell high).  I have lots of friends who are still working because they sold all their stocks in 2008 and 2009 and then waited too long to get back into the market and missed the huge runup in 2010-13.
• There is little yield in cash, so your money will not be working for you
• Markets always come back, although sometimes it takes a long time
• You should have a cash cushion for emergencies or if you are retired, a cash cushion of a few months expenses that you can spend in the short term.
• Think of it this way: stocks are on sale for 10% off what they were a month ago.

If anything, now is the time to buy some stock mutual funds or ETFs.  Not too much, moderation is always the key, the market could go down further and there will be even better buying opportunities.

As always, beware of what you read on the Internet, like this blog.  Talk to your financial adviser before making financial decisions like this.

Photo credit: Flickr

Americans Envy The Canada Pension Plan??

I often listen to Bloomberg Radio in the car, it is one of the few business radio stations that does not have ranting investment idiots (CNBC) or ranting political idiots (Fox Business Channel).  An ad recently caught my attention.

It essentially implied that the Canada Pension Plan (CPP) was superior to US Social Security and an American could get CPP even if they never worked in Canada.  They called this "Piggybacking", I kid you not, check out their web page here.  The CPP is superior because it has a separate investment fund managed by "highly skilled professionals", not a "pay as you go" system like US Social Security where the taxes coming in pay the current beneficiaries.

Sounds too good to be true?  Well yes.  Yes it is too good to be true.  If you delve deeper into this "piggyback" idea, you find out that you cannot get CPP if you never worked in Canada.  You can mimic the investments by buying shares in the same or similar companies, and therefore creating your own facsimile of the CPP.  But you cannot just get CPP, however much you admire what those smart Canadians are doing up North when they are not hanging out in their igloos drinking beer and watching hockey.

It is kind of crazy.  CPP pays less than US Social Security, unless you are poor enough to get the OAS as well.  The Canadian dollar is worth 76 cents US due to the commodity/oil price crash.  US Social Security will pay you more and it is partially tax free.  Yet someone thinks Americans can be tricked into the idea that they can get a Canadian pension and they should want this.

Pretty soon they will be convinced that Canadian Football is superior to the NFL...well...maybe not.

Picture credit: Flickr, Flickr

It's Not Good to be Right When Things Go Wrong

I was reflecting on my past corporate experience and it struck me that it is not good to be right when things that you opposed go wrong.

In my day, I was "the guy".  "The Guy" was the person who strongly opposed ideas that were popular with senior executives but were not going to work.  "The Guy" was the one that spoke up in meetings to say why we should not do something or do it differently and the consequences.  Meanwhile, the toadies and yes-people were whispering "..his career is toast.." or "..doesn't he know this is the CEO's pet project?"  I am not talking about piping up with a concern, having it squashed, then going along with the doomed project.  I am talking about really making yourself heard to the right decision makers, who were usually the cheerleaders for the idea.

Later, after the project bombs and there is a witch-hunt for the people involved in the decision, no one goes back to "the guy" and says "you were right".  In fact, you are just as likely as anyone involved to get swept up in the search for the guilty and pilloried.

A few examples I remember:

1. Opposing the degree of outsourcing in a project while we were trying to execute another big project.  Too much change, loss of expertise, confusion said I, and eventually the big project fell well behind schedule as the new outsource company struggled.
2. Forecasting that the WIMAX market would be small compared to traditional 3G and 4G technologies.  I predicted it would be around 1/10th or 1/100th of the traditional market, and it turned out to be even smaller.  This got me removed from my job and a forced transfer to a very unpleasant assignment.
3. Buying a small startup during the Internet bubble of the 00's, I was the leader of the due diligence team that examined the startup.  After a good first impression (the company hid all its troubles), we found major problems.  Despite bringing this to attention of senior execs, we went ahead and the reason given was "..it is good publicity to buy startups.."  Coincidentally, I was only asked to join a diligence team once after that, maybe because someone forgot to tell the execs I was "the guy".

So what advice can I offer to those still moving onwards and upwards with their career?  Following in my footsteps and becoming another "the guy" is not recommended.  Some guidance:

• Clearly state your position and reasoning when you are faced with that popular project that has major problems.  Make sure that you do it professionally and calmly in front of the right decision makers.
• Listen for the response.  If it is clear that you were heard and things are moving ahead anyway, you should quieten down and look for options:
• Don't try to undermine the project behind the scenes.  A bad project executed badly is worse than a bad project executed well.
• If there is no way to stop the train wreck, get out of the way if possible.  
• Support the project and see if there is a way to make it succeed, perhaps through a change in the plan.
• If there is another decision point in future, perhaps wait for this point to restate your case, particularly if more is known at that future time.
• If the results are going to be truly catastrophic (bankruptcy, criminal charges, loss of the corporation's good reputation), you should go to higher authority and state your case professionally

Picture credit: Flickr

Passing Time Well in Retirement

Over the last two years or so in semi-retirement, I learned a few things about how to spend your time well.  It is a challenge to pass your time favorably when you are not working or going to school 8 to 10 hours a day like you have for the past 55 years of your life.  During those 55 years, your use of time was mainly dictated by others, but now it is up to you to decide what to do and how to make it enjoyable.

I find you need certain things that were perhaps delivered by your previous working or family life:

• Companionship - you need to spend time with folks you like, including your family and spouse
• Purpose and fulfillment - getting things done that you feel are valuable
• Helping - providing assistance to others
• Physical activity - working out your muscles to stay healthy
• Mental activity - working out your brain.  I am a believer that you can postpone or eliminate dementia if you keep mentally active.
• Managing your life, your finances, your home.

Many activities deliver more than one of these characteristics so here is a list that I put together:

Activity	Companionship	Purpose	Helping	Physical Acitivity	Mental Activity	Managing
Travelling with your spouse and family	*	*		*	*	*
Writing a blog		*	*		*	*
Volunteering e.g. meals-on-wheels	*	*	*	*
Jobs around the house		*	*	*		*
Part time consulting	*	*			*
Starting a new job, career, or business	*	*		*	*	*
Getting together with friends	*
Pursuing a hobby		*			*
Playing a sport e.g. golf	*			*
Taking online courses		*			*
Taking adult education classes	*				*
Taking care of family members	*	*	*	*	*	*
Reading, using the Internet, educational TV for learning					*
Joining a club or organization (hobby, sports, political..)	*	*			*

The trick of course is to do a variety of things that deliver your right mix.  For me, it has consisted of:

• Travel
• Part time work
• Blogging
• Hobbies like building radio control quadcopters and computers
• Getting together with friends
• Taking courses online, playing golf, and working out
• Helping out with the family, particularly grandchildren and parents

You may want more companionship or more purpose in life, and that is great, find the activities that deliver those things.

Most of us are going to live long lives in retirement, thanks to medical science, so spending this time well makes sense.  Hope this helps and good luck.

Portfolio Asset Allocation Time (Again)

Markets keep churning up and down, with China stock markets way down and the USA somewhat up.  Your returns may be small or negative but is still time again to consider your asset allocation and do some rebalancing if necessary.

Asset allocation is the division of your investments into various types like bonds and stocks in order to give you diversification and fit your needs for return and risk.  Asset allocation is a very important determinant of your investment success and risk.  If you use passive (index) investing, asset allocation drives over 90% of the variability in your investment returns.

People often ask how to determine your asset allocation?  It does depend on things like:

1. Your goals - do you need money in the short (1-5 year) or long term (25 years)?
2. How much risk can you tolerate?
3. How much return do you need?

This website has a simple calculator that can be useful, or you can consult other online information or your financial adviser.  My asset allocation and deviation from target are shown below.  I need to reduce cash and increase bonds and international stocks.

It is time to look at your asset allocation again - are you on track or off target?  Likely your equity percentage is high and you may want to reduce it.  There are a few ways to do this with advantages and disadvantages

1. Buy and sell stocks or mutual funds to rebalance.  If this is done in a tax deferred account like an IRA, 401K, or RRSP, then there are no tax implications.  If you buy and sell in a taxable account, you may trigger capital gains and increase your taxes.
2. If you have an automatic investment deducted from your paycheck, like a 401K or RRSP contribution, you can change the investments that are purchased.  For example, if you are over your target on stocks and low on bonds, you can change the contribution to be 100% bond mutual funds.  This will over time bring your allocation back on target, but it takes time.
3. If you are regularly withdrawing form your investments, say to fund your retirement, you can change your withdrawal strategy to bring your allocation back to balance.  For example, if your cash is high, use up your cash on day to day expenses to bring it down.

As always, beware of what you read on the Internet, like this blog.  Not everything is the truth like the US faked the moon landings.  Talk to your financial adviser before making financial decisions like this.

Example Asset Allocation Versus Target

Your Portfolio Return Over the Last Year Sucks

You may not be keeping track of your return on your portfolio over the last year.  Let me pass on some information -  it probably sucks compared to recent returns.

Lets say you had a portfolio allocation as follows (conservative allocation), with returns estimated based on equivalent Vanguard Index funds:

Fund Type	Allocation	1 Yr Return
Domestic Bonds	40.00%	1.70%
Large Cap stock	24.00%	7.40%
Small Cap Stock	6.00%	5.21%
International Stock	20.00%	-6.69%
Cash	10.00%	1.00%
Total	100.00%	1.53%

So you made about 1.5%, which sucks in most peoples' minds.  Your particular return may be somewhat different depending on your exact allocation, buying and selling, etc.

But there is good news as well, let's look at the three year returns of the same portfolio.

Fund Type	Allocation	1 Yr Return
Domestic Bonds	40.00%	1.36%
Large Cap stock	24.00%	18.27%
Small Cap Stock	6.00%	19.35%
International Stock	20.00%	10.86%
Cash	10.00%	1.00%
Total	100.00%	8.36%

Looks pretty good over 3 years, right?

So a few points to consider.  

• Although most investors enjoyed high returns for the last 3 to 5 years or so, the last year was not as profitable, and this is normal.  Markets do not just keep going up and delivering double digit returns.
• Returns are still positive.  Those of us old enough to live through extended market downturns remember double digit negative returns during some multi year periods.
• It is important to stay in the market.  If you try to time your selling and buying, you will probably miss most of the eventual upturn and incur large transaction fees.

So yes, the return is not as good, but don't sweat it.  And, as always, do not believe everything you read on the Internet (like this blog) or in hard copy and consult a trusted financial advisor before making financial decisions.

Sources: WSJ.com mutual funds data