Outside Economics

What's-up with Iran?

Posted by Wendell Brock, MBA, ChFC on Fri, Feb 26, 2016

A few interesting facts about Iran will help put some perspective on the current status of the world economy. Iran is a country that is rich in other natural resources besides oil and they have a history of being an economic powerhouse in the Middle East region.  It will be interesting to watch how they play their new part on the world stage.

Sanctions imposed on Iran years ago were lifted in January thus allowing Iran to once again export and compete in the global economy. At the height of the sanctions, Iran saw their currency, the rial, collapse by over 80%, sending food and basic product prices to hyperinflation levels.Iran-flagmap.png

Iran has an abundance of natural resources it plans to export, including zinc, copper, iron ore, and oil. Iran’s announcement that it will begin adding another 500,000 daily barrels of oil to world oil markets helped sink oil prices further in January as an oversupply issue was magnified by Iran’s new production.

Iran is already the world’s third largest exporter of steel. Iran also has about 18% of the world’s natural gas reserves. Iran was also the first country in the Middle East to discover oil in 1902. It is estimated that Iran has proven oil reserves of 157 billion barrels, representing about 9% of the world’s proven reserves. This is a sore fact for Saudi Arabia, which is a vehement rival to Iran, both financially and religiously.

Demographically, Iran has a young and highly educated population, adding to its vitality and stockpile of a talented labor force. Some economists have identified Iran with Germany, calling it the “Germany of the Middle East”. If this is true then Iran can rise from the ashes and become a real economic powerhouse like Germany has post WWII. However because Iran still lacks the God given human rights, as many nations in the free world have, similar to our Bill of Rights, that are part of the U.S. Constitution, they will never mature to the same status as Germany has, never mind their oil.

Sources: CIA Factbook, IEA, Eurostat



"Vision with out work is daydreaming. Work without vision is drudgery. Vision, coupled with work, will ensure your success." - Thomas S. Monson



Topics: Oil, Iran, Natural Resources

6 Things You Must Know About Long-term Care Insurance

Posted by Wendell Brock, MBA, ChFC on Wed, Feb 17, 2016

Long-term care (LTC) insurance allows people to pay a known premium to help protect against the risk of much larger out-of-pocket expenses down the road. This article will help you understand some of the things to consider when purchasing an LTC polciy.


When considering policy taxation, there are two general types of long term care policies, they are:

long term care insurance1
  • Tax qualified (TQ) policies which are the most common policies offered. As per HIPPA, a TQ policy requires that a person 1) be expected to require care for at least 90 days, and be unable to perform 2 or more activities of daily living (eating, dressing, bathing, transferring, toileting, maintaining continence) without substantial assistance (hands on or standby); or 2) for at least 90 days, need substantial assistance due to a severe cognitive impairment. In either case a doctor must provide a plan of care. Benefits from a TQ policy are non-taxable.
  • Non-tax qualified (NTQ) which was formerly called traditional long term care insurance. It often includes a "trigger" called a "medical necessity" trigger. This means that the patient's own doctor, or that doctor in conjunction with someone from the insurance company, can state that the patient needs care for any medical reason and the policy will pay. NTQ policies may include walking as an activity of daily living and usually only require the inability to perform 1 or more activity of daily living. The Treasury Department has not clarified the status of benefits received under a non-qualified long-term care insurance plan. Therefore, the taxation of these benefits is open to further interpretation. This means that it is possible that individuals who receive benefits under a non-qualified long-term care insurance policy may risk facing a large tax bill for these benefits.

Fewer non-tax qualified policies are available for sale. One reason is that consumers want to be eligible for the tax deductions available when buying a tax-qualified policy. The tax issues can be more complex than the issue of deductions alone, and it is advisable to seek good counsel on all the pros and cons of a tax-qualified policy versus a non-tax-qualified policy, since the benefit triggers on a good non-tax-qualified policy are better.

Most benefits are paid on a reimbursement basis and a few companies offer per-diem benefits at a higher rate. Most policies cover care only in the continental United States. Policies that cover care in select foreign countries usually only cover nursing care and do so at a rated benefit.

Partnership Plans and Medicaid

The Deficit Reduction Act of 2005 makes Partnership plans available to all states, although not all states participate in this program. Partnership plans provide “lifetime asset protection" from the Medicaid spend-down requirement.

In return for purchasing partnership policies, a portion of a policyholders’ assets will be disregarded when determining their eligibility for Medicaid long-term care services, if and when they apply for such services. Traditionally, to be eligible for Medicaid, applicants’ assets cannot exceed certain financial eligibility thresholds.

When applying for Medicaid long-term care benefits, the Partnership program allows individuals who purchase qualifying insurance policies to retain one dollar in assets for each dollar of long-term care insurance benefits paid by the policy. For example, the typical asset limit for an individual applying for Medicaid nursing home services is $2,000. If an applicant received $100,000 in benefits through a partnership program insurance policy, they may retain up to $102,000 in assets.


Most policies have an elimination period or waiting period similar to a deductible. This is the period of time that you pay for care before your benefits are paid. Elimination days may be from 20 to 120 days. The longer the elimination period the lower the premium.  Some policies require that the policy for long-term care be paid up to one year before becoming eligible to collect benefits.

What About Inflation

Because the daily or monthly benefit amount you buy today may not be enough to cover higher costs years from now, most policies give you the option of adding an inflation protection feature, for an additional premium cost. With automatic inflation protection, the initial benefit amount increases automatically each year at a specified rate, such as 3%.

Another form of inflation protection is the guaranteed purchase option. This gives you the option of increasing your benefit amount and your premium every few years. Policies without inflation protection cost less, but their benefit amounts do not increase and may be inadequate if you need long-term care many years from now.

Nonforfeiture Option

Some people feel that if they pay premiums on an insurance policy for years but later drop the policy, they should receive some payment. A policy with nonforfeiture provision does this. Most companies offer nonforfeiture options on long-term care policies. However, that can add from 20% - 100% to the cost of the premium.

Asset Based Policies

Other LTC policies are “asset based” meaning that they are based on an annuity, or a cash value life insurance policy. The benefit of these types of policies are the favorable underwriting, which is a blend of LTC and life insurance underwriting, giving people who may not qualify for one specific type of policy, be able to get a policy this way. Or LTC and annuity underwriting again may provide a benefit to the insured.

An example is a person who for one health reason, like diabetes who was turned down for regular LTC insurance, may be able to obtain a policy via an asset based policy.

This can also provide additional stability for other investments. A fixed annuity provides a solid fixed rate of return, even at three percent, it is much higher than zero! Also with the right annuity you may be able to withdraw money income tax free when those funds are used for qualified long-term care expenses.

A problem with long-term care insurance is that statistically 30 percent of people don’t end up using it and they feel like they have wasted all those expensive premiums. So the asset based policy solves this problem, it is not a “use it or lose it” policy. If you use it for long-term care great, if not then it is left to your heirs as part of your estate plan, either way the policy is preserving your estate. If the policy holder decides to cash it in then they can do that also, in some cases getting more than what they put in the policy.

Because long-term care policies are purchased by more people at or near retirement in preparation for what may happen in near the end of life. The question is this; is your retirement plan complete without some sort of long-term care plan in place? For most Americans, 93% of them, older than 60 years old, the answer is NO. And then for those who are younger than 60 what about your parents? What do they have in place? If they have nothing, will they be moving in with you? If you have questions about who needs long-term care insurance read Who Needs Long-Term Care Insurance.


It's been said, "It isn't happy people who are grateful, it is grateful people who are happy!"

Topics: retirement, Long term care, LTC, LTC insurance, retirement planning

Now What’s Floating to the Top: Oil, Gold, Equities, or Bonds

Posted by Wendell Brock, MBA, ChFC on Thu, Feb 11, 2016

Talk is, that one of the reasons the market is falling right now is because it was overpriced, which may be the case, however another part of the problem has been that when considering options, where else can you put your money?

Banks aren’t much of an option – at the continuously low rates it makes it pretty painful to leave money there. At least when rates were higher and a depositor could get 4%-6% at a bank you had a fairly good risk free option. Too much cash on the sidelines will certainly cause the market to be bid up. Maybe it’s an issue of supply and demand – there aren’t enough shares to go around, so the prices get bid up.Oil_gold.jpg

Insurance companies, which are very long-term investors, are currently running about 2-4X or more the rate banks are offering. These rates are certainly going to help folks get better returns, with little to no risk. But when chasing performance even those stable rates don’t appeal to everyone. So this week I thought we would look at one reason why the market has tanked over the past several weeks, and consider the option of putting more money in the market – after many of the stocks and bonds are clearly on sale!

Below is a look at why the markets are falling, what is up with bonds, and a check on precious metals.

Why Stocks Went Down When Oil Went Down – Domestic Equities

Equity markets descended in January alongside oil prices, while testing new lows with a visible increase in volatility. Oil’s dramatic price drop has been a catalyst for stock prices heading lower, a so-called correlation that has actually existed for years.

There are various theories as to how oil and stock prices might be correlated, yet one of the most accepted revolves around macro economic global dynamics.

Oil is the most traded and actively utilized commodity in the world whose consumption represents the economic activity worldwide. So when oil supplies grow and demand drops, markets interpret that as an economic slowdown. Such a slowdown thus migrates into the equity markets, where economic activity and growth is essential for expansion and higher equity prices.

Lower oil prices can also be beneficial for certain sectors, such as consumers, transportation and airlines, whose primary expenses are fuel. Economists expect a possible lag effect with recent low oil prices, which may eventually appear on corporate income statements. Obviously, lower oil prices are not conducive to oil industry sector companies, whose margins shrink as oil prices drop.

Some fixed income investors now view U.S. energy stocks as opportunities to earn higher yields on dividends compared to where they were months ago. Lower valuations on energy stocks have led to higher stock dividend yields as prices have fallen.

Does this mean that the markets won’t recover until oil prices go up? For that answer only time will tell…

Fixed Income – Global Bond Markets

The Fed is now at odds with nearly every other developed country central bank as others employ a rate decrease and stimulus strategies.

In its latest FOMC meeting in January, the Fed decided to leave its rate hike plans intact, disappointing markets and lifting U.S. rates slightly. The Fed did acknowledge slightly lower economic growth and volatile equity market conditions as variables to monitor.

International rates fell in January as central banks moved forward with stimulus efforts aided by lower borrowing rates. The ECB and Japan both reduced their key lending rates enough to drive markets in both regions towards risk assets. Japan’s central bank surprised markets by lowering one of its main lending rates into negative territory for the first time in order to stimulate its sagging economy.

Gold and Silver - What's Up?

Considering the markets and the downward trend, it seems that Gold and Silver (precious metals) have come off the winner over the past couple months. Both gold and silver are up, about 14% and 10% respectively. It makes sense to own some precious metals, but as with any investment how much higher will it go? Typically, people own precious metals as a balance to inflation but it can be a stabilizer to an investment portfolio.

With that news, it looks like for the time being, Gold is floating to the TOP! So does this mean we are at the bottom of the current sell off? No, perhaps but not likely. Does it mean its time to put more money in the market and buy while things are on sale? Maybe. Many of these answers are particularly personal to your current situtation that is why a good comprehensive evaluation is valuable.

Sources: Federal Reserve, Bloomberg, Economic Premise #150 World Bank, IMF Research Bulletin, Federal Reserve System Perspective


"The hardest thing in the world to understand is income tax." - Albert Einstein


Topics: Gold, Oil, Silver, Bonds, equities, banks, Insurance Companies

You Want a Better Investment Portfolio – Stop Chasing Performance

Posted by Wendell Brock, MBA, ChFC on Thu, Feb 04, 2016

It’s funny in conversation how many times people when asked what they are invested in talk about the hot stock fund from last year, which they were not in, but they are now! They just bought some! How many times have you found yourself looking at investment options find yourself looking at last year’s performance figures and say, “well that one did great, I think I will put some money there.”alton-towers-theme-park-closed-after-rollercoaster-crash.png

That is the wrong way to approach to investing – after all past performance is no indication of future results. The thought of being a Monday morning quarterback and calling the plays after the game is over just does not work well as an investment strategy. It may be better to simply keep a small amount of money in several funds and rebalance than think you can be a “crystal ball” investor and always pick the winners.

Its the ups and downs that get people sick - the roller coaster may be fun for a theme park, because it last for a couple minutes; an investment portfolio is suppose to last many years! That is a lot of ups and downs - particularly when chasing last year's best performer.

My friend, Dr. Craig Israelsen, PhD., wrote an article on Chasing Fund Performance and how impossible it is to select the winners regularly. However by keeping a diversified portfolio you will generally pick-up some winners and maybe some losers. Over the long term the winners will outweigh the losers and the portfolio will succeed.

In the article he describes what happens when portfolios chase the best asset class of last year. The growth rate of that model really drops when compared to other model portfolios. As Israelsen points out, it drops to 2.71% over a 15 year period.  This shows the value of a well-managed diversified portfolio. Using his 7Twelve portfolio over the same time period the 15 year annualized return would be 7.95%.

There are a ton of investment strategies that people use, if you are looking for a solid balanced portfolio, then I invite you to read the article – you can down load a free copy here.



Sam Ewing Said, "Inflation is when you pay $15 for the $10 haircut you use to get for $5 when you had hair."

Topics: asset classes, Performance, Investment strategies, investment portofolio


Wendell W. Brock, MBA, ChFC

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