Monday, April 30, 2007

Why bother with a will?

In going through some files this past weekend I came across this letter written tongue in cheek to someones heirs. It seems worthy of sharing.

Dear loved Ones,

While I understand that I have the right to determine who gets my property when I die, I have decided to let the fair, just and impartial court system make that decision for me. I have decided this, even though it might mean that people I never knew or liked could wind up as my heirs. I also understand that there are perfectly legal and legitimate ways of minimizing the estate taxes that you will have to pay. However, because of our governments kindness and generosity to me over the years, I have decided to let our beloved Uncle Sam take the biggest share of my assets that he can.

In addition, rather than decide who should take care of my children, I think that I would rather have my family fight about it publicly, and then let the courts go ahead and appoint anyone they like, not necessarily one of you. I would also like you to know that I think lawyers, as a group, are hugely underpaid and under loved, and so they should have a large share of my assets.

Finally, I want all the private details of my financial affairs to become part of the public record, so that anyone who is even remotely interested, for any reason, can simply look it up.

Good luck and much love.

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Wednesday, April 25, 2007

The "new math" of the distribution phase

American Funds has issued a new white paper discussing the distribution phase of an investment portfolio. It brings to light some interesting points and is well worth the read. To access the report please click here.

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Thursday, April 05, 2007

Stamps Prices Increase Again This Month


The US Postal Service has announced yet another increase in the price of a postage stamp. This is old news but I bring it up to illustrate how inflation can erode our buying power. Take a look at the images on the left. In 1976 a first class stamp cost only 20 cents, later this month it will reach 41 cents. That is a little over double the cost in the last 31 years. Some of you may remember all these stamps, for some it will represent a span of time longer than their years on earth. No matter, the point is this period of time represents relatively benign inflation rates. A postage stamp has averaged just a 2.3% inflation rate over this last 31 years yet
your cost of living has doubled. Even small inflation rates can be
devastating over the span of a human life. So what can you do
to protect yourself?



You should understand that real return (gross return after taxes and inflation) is the true measure of your progress. If you are currently earning 5% on a CD or money market account your after inflation return is about 2.5%. If you earn 10% from a stock investment your after inflation return is about 7.5%, about three times the after inflation return of a fixed income investment.

If you are retired and living on a fixed income portfolio you can only spend around 2.5% of your portfolio value each year. The rest has to be reinvested just to keep you even with inflation, or else you should
expect to eat half as much 31 years from now!

Converting your investments from the accumulation phase to the income phase does not mean things get easier, in fact providing a reliable long term income stream from your investments is more challenging than accumulating those assets to begin with.




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