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Europe Insurers Shift Focus
Life Operations
Are Expanded in Bid
To Protect Profits
By GORAN MIJUK
June 30, 2008; Page C5
ZURICH -- With prices for property and casualty insurance expected to continue falling this year, some European insurers and reinsurers are boosting their life-insurance operations and could pursue takeovers to protect premium growth and profits.
Some life-insurance markets, especially in emerging Asian economies, promise double-digit growth rates because of rising demand for life savings products from increasing numbers of affluent people. As growth for other insurance business is expected to remain sluggish in mature markets like the U.S. and Europe, analysts also expect more takeovers and business tie-ups.
[Jacques Aigrain]
NOTE: LIFE INSURANCE IS INDEED A NEED MAY IT BE IN TIMES OF CRISIS.
World-wide nonlife premiums fell 0.3% last year, while life premiums rose 4.7%, according to data from Swiss Re, which said the trend is expected to stay in place. In Russia, life-premium volume jumped 30%.
Some industry executives and analysts warn that because of a mass move toward emerging markets, growth rates may be less pronounced than expected. Many also caution that large takeovers may be the wrong avenue to boost growth because of the high cost of capital.
"The efforts to increase the life-insurance portfolio by insurance and reinsurance companies are certainly positive," says Rene Locher, a Zurich-based insurance analyst for Sal. Oppenheim. "But the move toward life insurance alone won't be able to fully compensate the fall in prices in the nonlife sector."
NOTE: RENE LOCHER IS A RESPECTED PERSONALITY IN THE INSURANCE INDUSTRY.
Swiss Re, the world's largest reinsurer in terms of premiums, is shifting focus to life, saying that prices for other insurance, especially in mature markets, are falling. Reinsurance companies provide insurance to insurers, in exchange for a fee.
"We are allocating our capital efficiently to the lines of business with the best return, for example in the life sector," said Swiss Re Chief Executive Officer Jacques Aigrain. He noted that Swiss Re has substantially reduced its exposure to insuring business risk and is now allocating more capital to life-insurance businesses, including those focused on retirement planning.
Companies and analysts say that while life insurance premiums will increase, other insurance and reinsurance prices will weaken fast this year after rising for several years. Besides fierce competition, a weakening economy in the U.S. and in Europe is also expected to put pressure on premiums this year.
Still, emerging markets make up only about a tenth of all the insurance business in industrialized markets. General annual life and nonlife premiums in industrialized countries stood at around $3.6 trillion at the end of 2007, compared with $414 billion in emerging markets.
Hannover Re, which ranks third in premium income among the world's largest reinsurers, after Swiss Re and Munich Re, also hopes that its growing life reinsurance business will help it increase profit this year. CEO Wilhelm Zeller said in June that the company expects to see "double-digit growth" in premiums and net profit from its life and health businesses. The company hopes to boost its life business by 12% to 15% this year, offsetting weak premiums in other businesses, which are expected to shrink by around 5% compared with last year.
French reinsurance company Scor SA also sees strong growth, with less volatility, in the life insurance sector, CEO Denis Kessler said Thursday.
But as the natural growth of business is likely to be too slow, insurance analysts also expect companies to engage in some mergers and acquisitions, although risks will be high given current market volatility.
At Swiss Re, Mr. Aigrain said the company isn't planning any big takeovers but is looking at buying life insurance portfolios from other insurers.
Zurich Financial Services, whose profit depends predominantly on its nonlife business, is believed to be a frontrunner in bidding for Royal Bank of Scotland Group PLC's life and nonlife insurance business. Zurich Financial has repeatedly declined to comment on the market speculation.
The financial market hasn't reacted well to Zurich Financial's presumed interest in the RBS unit, though, fearing that it might pay too much and have to raise new capital. Since the beginning of May, when the Swiss insurer was mentioned for the first time as a possible bidder, its stock has fallen around 20%.
Still, Zurich Financial says it sees growth opportunities in all insurance sectors. "It's not a matter of pitting general insurance against life insurance, since we see attractive opportunities in both", said Zurich Financial Chief Financial Officer Dieter Wemmer Thursday.
Write to Goran Mijuk at goran.mijuk@dowjones.com
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Saturday, July 5, 2008
Friday, July 4, 2008
CAN YOU AFFORD LONG -TERM- CARE INSURANCE?
Click here to find out more!
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Home > Money & Business > Planning to Retire > Can You Afford Long-Term-Care Insurance?
« 8 More Ways to Save in Retirement
Planning to Retire by Emily Brandon
Can You Afford Long-Term-Care Insurance?
June 30, 2008 01:09 PM ET | Emily Brandon | Permanent Link
Long-term care is likely to be most Americans' greatest expense of all in retirement. A private room in a nursing home costs $76,460 annually on average, or $209 a day, and Medicare typically won't cover it.
Long-term-care insurance can help protect you from some of these unpredictable costs. It can be used to pay for nursing home expenses, adult day care, and in-home help for seniors with chronic conditions or who need extra help recovering from an illness.
But this pricey insurance is prohibitively expensive for many people. AARP estimates that a 65-year-old in good health can expect to pay between $2,000 and $3,000 a year for a policy that covers nursing-home and home care. And Fidelity Investments estimates that a couple, both of whom are 65 in 2008, will need $85,000 to insure against a lifetime of long-term-care expenses.
NOTE: THINGS TO CONSIDER PRIOR TO GETTING A LIFE INSURANCE...
If you're going to buy long-term-care insurance, here are a few things to consider:
Premiums. Find out what the premium is now and what it will cost in the future. Ask if a pre-existing medical condition could influence premium prices. AARP says you may not want to buy a policy if the cost of premiums will lower your standard of living or force you to give up other things you need right now. The National Program on Women and Aging recommends that, as a rule of thumb, premiums should be less than 20 percent of your disposable income after all other essential bills are paid. So, this type of insurance is primarily appropriate for people with assets between $200,000 and $1.5 million, according to Consumer Reports. Both long-term-care expenses and insurance are so expensive that almost all middle- and low-income households rely on Medicaid for nursing home care after they spend down their assets to a level at which they qualify.
NOTE: AARP IS A WELL RESPECTED COMPANY IN THE INSURANCE INDUSTRY.
Coverage. You can choose to be covered for different varieties of home healthcare, nursing-home care, or both. Some providers offer lower premiums if you agree to a waiting period of up to 100 days before coverage begins, during which you pay all of your own expenses.
Be sure to ask about the duration of coverage. Long-term-care coverage doesn't always last that long. The average length of stay in a nursing home is 3.7 years for women and 2.7 years for men, according to Joan Bloom, a senior vice president for Fidelity Investments Life Insurance Co. You can choose a benefit period as short as two years or as long as the rest of your life. And you'll want to find out about maximum daily, monthly, or lifetime payouts and whether they are indexed for inflation. If your care costs more than the caps, you will have to pay for it out of your own pocket.
The company. Ask what happens if the insurance company should go out of business before you need long-term-care coverage. And check out its track record for paying out claims. You can examine ratings of companies online at A.M. Best, Moody's, and Standard & Poor's. Consumer Reports recommends that you buy only from insurers that are rated in the top two financial-strength categories by at least two of the ratings services. You can also check up on a company with your state insurance department.
The fine print. Read any contract you sign carefully, and ask questions. Find out how to cancel, what happens if you stop paying the premiums, how many times you can renew, and what needs to happen before you can begin using your benefits. A fee-only financial planner, whom you pay by the hour and who doesn't accept commissions for selling you financial products, can help you decipher the fine-print sales pitch.
Your state. Insurance laws and options vary by state. The nonprofit Family Caregiver Alliance has a Web tool to help consumers peruse long-term-care options in each state. And the National Association of Insurance Commissioners offers consumer tips for buying long-term-care insurance.
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Home > Money & Business > Planning to Retire > Can You Afford Long-Term-Care Insurance?
« 8 More Ways to Save in Retirement
Planning to Retire by Emily Brandon
Can You Afford Long-Term-Care Insurance?
June 30, 2008 01:09 PM ET | Emily Brandon | Permanent Link
Long-term care is likely to be most Americans' greatest expense of all in retirement. A private room in a nursing home costs $76,460 annually on average, or $209 a day, and Medicare typically won't cover it.
Long-term-care insurance can help protect you from some of these unpredictable costs. It can be used to pay for nursing home expenses, adult day care, and in-home help for seniors with chronic conditions or who need extra help recovering from an illness.
But this pricey insurance is prohibitively expensive for many people. AARP estimates that a 65-year-old in good health can expect to pay between $2,000 and $3,000 a year for a policy that covers nursing-home and home care. And Fidelity Investments estimates that a couple, both of whom are 65 in 2008, will need $85,000 to insure against a lifetime of long-term-care expenses.
NOTE: THINGS TO CONSIDER PRIOR TO GETTING A LIFE INSURANCE...
If you're going to buy long-term-care insurance, here are a few things to consider:
Premiums. Find out what the premium is now and what it will cost in the future. Ask if a pre-existing medical condition could influence premium prices. AARP says you may not want to buy a policy if the cost of premiums will lower your standard of living or force you to give up other things you need right now. The National Program on Women and Aging recommends that, as a rule of thumb, premiums should be less than 20 percent of your disposable income after all other essential bills are paid. So, this type of insurance is primarily appropriate for people with assets between $200,000 and $1.5 million, according to Consumer Reports. Both long-term-care expenses and insurance are so expensive that almost all middle- and low-income households rely on Medicaid for nursing home care after they spend down their assets to a level at which they qualify.
NOTE: AARP IS A WELL RESPECTED COMPANY IN THE INSURANCE INDUSTRY.
Coverage. You can choose to be covered for different varieties of home healthcare, nursing-home care, or both. Some providers offer lower premiums if you agree to a waiting period of up to 100 days before coverage begins, during which you pay all of your own expenses.
Be sure to ask about the duration of coverage. Long-term-care coverage doesn't always last that long. The average length of stay in a nursing home is 3.7 years for women and 2.7 years for men, according to Joan Bloom, a senior vice president for Fidelity Investments Life Insurance Co. You can choose a benefit period as short as two years or as long as the rest of your life. And you'll want to find out about maximum daily, monthly, or lifetime payouts and whether they are indexed for inflation. If your care costs more than the caps, you will have to pay for it out of your own pocket.
The company. Ask what happens if the insurance company should go out of business before you need long-term-care coverage. And check out its track record for paying out claims. You can examine ratings of companies online at A.M. Best, Moody's, and Standard & Poor's. Consumer Reports recommends that you buy only from insurers that are rated in the top two financial-strength categories by at least two of the ratings services. You can also check up on a company with your state insurance department.
The fine print. Read any contract you sign carefully, and ask questions. Find out how to cancel, what happens if you stop paying the premiums, how many times you can renew, and what needs to happen before you can begin using your benefits. A fee-only financial planner, whom you pay by the hour and who doesn't accept commissions for selling you financial products, can help you decipher the fine-print sales pitch.
Your state. Insurance laws and options vary by state. The nonprofit Family Caregiver Alliance has a Web tool to help consumers peruse long-term-care options in each state. And the National Association of Insurance Commissioners offers consumer tips for buying long-term-care insurance.
Tags: insurance | retirement
Tools: Share | Yahoo! Buzz | Comments (0)
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OTHER ARTICLES FROM THE PLANNING TO RETIRE BLOG
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* June 2008 (27)
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* April 2008 (12)
1. 8 More Ways to Save in Retirement
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4. Avoiding Bankruptcy in Old Age
5. Traditional Pensions Net Higher Stock Market Returns
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Thursday, July 3, 2008
AEGON RELIGARE LIFE INSURANCE GETS FINAL IRDA NOD
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AEGON Religare Life Insurance gets final IRDA nod
30 Jun, 2008, 1742 hrs IST, ECONOMICTIMES.COM
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MUMBAI: AEGON Religare Life Insurance Company has received the final approval from the Insurance Regulatory & Development Authority to operate in the life insurance space. The R3 license from the IRDA is the last of the three steps in the registration process.
"Our plans for the nationwide launch are now ready for execution. We will strive to delight our customers through a fresh approach, innovative solutions and seamless delivery," said Rajiv Jamkhedkar, CEO, AEGON Religare Life Insurance, which is a joint venture between AEGON and Religare.
NOTE: AEGON AND RELIGARE HAVE A VERY IMPORTANT ROLE IN THE INSURANCE INDUSTRY.
AEGON is one of the world's largest life insurance and pension companies with presence in more than 20 countries. It employs about 30,000 people, and services over 40 million customers across the world.
Religare is a leading integrated financial services institution. The company's retail network is spread in over 1,300 locations across more than 400 cities and towns in India. It has total employee strength of more than 10,000.
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AEGON Religare Life Insurance gets final IRDA nod
30 Jun, 2008, 1742 hrs IST, ECONOMICTIMES.COM
Print EMail
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MUMBAI: AEGON Religare Life Insurance Company has received the final approval from the Insurance Regulatory & Development Authority to operate in the life insurance space. The R3 license from the IRDA is the last of the three steps in the registration process.
"Our plans for the nationwide launch are now ready for execution. We will strive to delight our customers through a fresh approach, innovative solutions and seamless delivery," said Rajiv Jamkhedkar, CEO, AEGON Religare Life Insurance, which is a joint venture between AEGON and Religare.
NOTE: AEGON AND RELIGARE HAVE A VERY IMPORTANT ROLE IN THE INSURANCE INDUSTRY.
AEGON is one of the world's largest life insurance and pension companies with presence in more than 20 countries. It employs about 30,000 people, and services over 40 million customers across the world.
Religare is a leading integrated financial services institution. The company's retail network is spread in over 1,300 locations across more than 400 cities and towns in India. It has total employee strength of more than 10,000.
Discuss this story with other readers. Click on 'Discuss' link at the top and bottom of the story. To know more about this feature click 'here'.
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Wednesday, July 2, 2008
NAMIBIA: LIFE INSURANCE, RIP-OFF OR PAY-OFF?
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Namibia: Life Insurance, Rip-Off Or Pay-Off?
The Namibian (Windhoek)
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The Namibian (Windhoek)
COLUMN
30 June 2008
Posted to the web 30 June 2008
Windhoek
Seeing the value in life insurance is often, as is the case with many intangible goods, somewhat difficult at first glance.
For example, life insurance that pays out when the insured life dies. Many people believe they will never get anything back in return for their premiums. A closer look, however, quickly shows that this is not true.
NOTE: STUDY OF LIFE INSURANCE IS HIGHLY RECOMMENDED.
In qualifying this statement, it is important to take into account that life cover generally takes on one of two forms - the one form is term insurance which will only pay out the contracted life cover should the person whose life is insured die within the agreed time period for which the cover is taken out.
The other form is whole life insurance which pays out the contracted life cover at whatever point in time the life insured dies.
It is thus clear that if a whole life policy is maintained, at some future time there will be a payoff.
The premium payable for term cover is less than for whole life cover, all other things being equal.
Whether you select a term insurance option or a whole life insurance option should be determined by the need you are attempting to address - if life cover is only needed for a very specific period of time (e.g. for bond cover where it is known in what period the bond will be repaid and there is no additional need for life cover after repayment of the bond) term cover might suffice, but as a general rule it is better and wiser to take out whole life cover.
NOTE: IT IS ALSO IMPORTANT TO LISTEN TO STORIES OF THOSE WHO GOT INSURANCE.
A short example to illustrate the value of taking out whole life insurance is outlined below: Joe is a 35 year old male accountant with a wife and two children.
Joe's financial adviser has done a capital needs analysis for him, from which it is evident that Joe's dependants would require N$1 million capital to replace the loss of income his family would suffer should he die today.
A quotation for N$1 million whole life cover on Joe's life with a level premium shows that Joe would have to pay N$ 261,00 per month for the required cover.
Joe is interested in knowing if, should he decide not to take out the life cover and instead invest the premium he would have paid towards the life cover, what returns he would need to get on his investment to be in the same position.
This situation is outlined in the following table: Monthly Return needed Dies at Age Premium to equal Paid life cover 40 (5 years on) 261,00 123,62% 45 (10 years on) 261,00 51,8% 55 (20 years on) 261,00 21,26% 65 (30 years on) 261,00 12,37% 75 (40 years on) 261,00 8,3% It is therefore clear that even if the life cover is looked at as an investment that will last for Joe's expected lifetime, it still delivers a competitive return. Whilst the return generated by life insurance is one important aspect when considering the value for money of life insurance, there is also another very important aspect to consider - the fact that nobody is exactly sure when he/she is going to die.
Relevant Links
Southern Africa
Banking and Insurance
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This is where life cover really offers a cost effective solution to create the capital needed by the life insured's dependants. If, in our example, Joe should die in a car accident three months after having taken out his life insurance, he would receive N$1 million in return for total premiums paid of N$783,00 - a very sound investment indeed! A different way of looking at this is to say that Old Mutual in return for N$261,00 per month carries the risk of Joe dying prematurely, instead of Joe's family having to carry that risk.
NOTE: LIFE INSURANCE IS INDEED A WISE INVESTMENT SPECIALLY THOSE WITH DEPENDENTS.
From what we have highlighted above it is obvious that to extract maximum value from your insurance portfolio, your portfolio needs to be based on a proper analysis of your needs.
These needs must be reviewed regularly. For further information and advice tailored to suit your unique needs, please call your Old Mutual Namibia financial adviser or broker -This article was contributed by Mathys du Preez (Manager: Retail Advice) Centre - Old Mutual Namibia
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
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Namibia: Life Insurance, Rip-Off Or Pay-Off?
The Namibian (Windhoek)
Email This Page
Print This Page
Comment on this article
The Namibian (Windhoek)
COLUMN
30 June 2008
Posted to the web 30 June 2008
Windhoek
Seeing the value in life insurance is often, as is the case with many intangible goods, somewhat difficult at first glance.
For example, life insurance that pays out when the insured life dies. Many people believe they will never get anything back in return for their premiums. A closer look, however, quickly shows that this is not true.
NOTE: STUDY OF LIFE INSURANCE IS HIGHLY RECOMMENDED.
In qualifying this statement, it is important to take into account that life cover generally takes on one of two forms - the one form is term insurance which will only pay out the contracted life cover should the person whose life is insured die within the agreed time period for which the cover is taken out.
The other form is whole life insurance which pays out the contracted life cover at whatever point in time the life insured dies.
It is thus clear that if a whole life policy is maintained, at some future time there will be a payoff.
The premium payable for term cover is less than for whole life cover, all other things being equal.
Whether you select a term insurance option or a whole life insurance option should be determined by the need you are attempting to address - if life cover is only needed for a very specific period of time (e.g. for bond cover where it is known in what period the bond will be repaid and there is no additional need for life cover after repayment of the bond) term cover might suffice, but as a general rule it is better and wiser to take out whole life cover.
NOTE: IT IS ALSO IMPORTANT TO LISTEN TO STORIES OF THOSE WHO GOT INSURANCE.
A short example to illustrate the value of taking out whole life insurance is outlined below: Joe is a 35 year old male accountant with a wife and two children.
Joe's financial adviser has done a capital needs analysis for him, from which it is evident that Joe's dependants would require N$1 million capital to replace the loss of income his family would suffer should he die today.
A quotation for N$1 million whole life cover on Joe's life with a level premium shows that Joe would have to pay N$ 261,00 per month for the required cover.
Joe is interested in knowing if, should he decide not to take out the life cover and instead invest the premium he would have paid towards the life cover, what returns he would need to get on his investment to be in the same position.
This situation is outlined in the following table: Monthly Return needed Dies at Age Premium to equal Paid life cover 40 (5 years on) 261,00 123,62% 45 (10 years on) 261,00 51,8% 55 (20 years on) 261,00 21,26% 65 (30 years on) 261,00 12,37% 75 (40 years on) 261,00 8,3% It is therefore clear that even if the life cover is looked at as an investment that will last for Joe's expected lifetime, it still delivers a competitive return. Whilst the return generated by life insurance is one important aspect when considering the value for money of life insurance, there is also another very important aspect to consider - the fact that nobody is exactly sure when he/she is going to die.
Relevant Links
Southern Africa
Banking and Insurance
Economy, Business and Finance
Namibia
This is where life cover really offers a cost effective solution to create the capital needed by the life insured's dependants. If, in our example, Joe should die in a car accident three months after having taken out his life insurance, he would receive N$1 million in return for total premiums paid of N$783,00 - a very sound investment indeed! A different way of looking at this is to say that Old Mutual in return for N$261,00 per month carries the risk of Joe dying prematurely, instead of Joe's family having to carry that risk.
NOTE: LIFE INSURANCE IS INDEED A WISE INVESTMENT SPECIALLY THOSE WITH DEPENDENTS.
From what we have highlighted above it is obvious that to extract maximum value from your insurance portfolio, your portfolio needs to be based on a proper analysis of your needs.
These needs must be reviewed regularly. For further information and advice tailored to suit your unique needs, please call your Old Mutual Namibia financial adviser or broker -This article was contributed by Mathys du Preez (Manager: Retail Advice) Centre - Old Mutual Namibia
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
Share this on:
Digg
Del.icio.us
StumbleUpon
Muti
Copyright © 2008 The Namibian. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections -- or for permission to republish or make other authorized use of this material, click here.
Make allAfrica.com your home page | RSS Feed
Top | Site Guide | Who We Are | Advertising | Search | Subscribe
Questions or Comments? Contact us. Read our Privacy Statement.
HOME
allAfrica.com
Relevant Links
Southern Africa
Banking and Insurance
Economy, Business and Finance
Namibia
Centenary Bank Goes to Masaka
Govt to Probe All Banks Over Corruption Scandal
Co-Op Bank Doubles IPO Target to Sh10 Billion
Intercontinental Bank Debuts in UK
Banks Use Depositors' Money to Buy Forex
Today's Most Active Stories
* Most Read
* Most Commented
* Most Emailed
1. Zimbabwe: BBC, Stop Fanning Flames of War
2. Zimbabwe: Consensus Grows on Negotiated End to Crisis
3. Zimbabwe: Odinga Calls for AU to Suspend Mugabe
4. Nigeria: G8 Worried Over Country's Nuclear Programme
5. Zimbabwe: Mbeki Backs Mugabe in Hope of Coalition Deal
6. Zimbabwe: Mugabe Now to Crack Down on His Own Party?
7. Uganda: Do Not Play Guitar Music to a Goat's Ears
8. Zimbabwe: Situation Calls for Decisive Action
9. Liberia: President Sirleaf Arrives in Egypt for African Union Summit
10. Somalia: The Ethiopia Military's Puzzling Maneuvers in Central Region
1. Zimbabwe: MDC Tsvangirai's Political Theatrics
2. Zimbabwe: Worried Over Robert Mugabe Vs. the Western World's Press?
3. Zimbabwe: UN Blocks British, U.S. Attempts to Halt Run-Off
4. Zimbabwe: African Union Has Power to Sanction Mugabe
5. Zimbabwe: Opposition Pulls Out of Election
6. Zimbabwe: Tsvangirai - Please Grow Up
7. Zimbabwe: BBC, Stop Fanning Flames of War
8. Zimbabwe: Barack Obama Condemns Mugabe 'Brutality'
9. Zimbabwe: Tories Advocate Military Action Against Country
10. Zimbabwe: South Africa Boosts Election Legitimacy - Report
1. Zimbabwe: BBC, Stop Fanning Flames of War
2. Nigeria: G8 Worried Over Country's Nuclear Programme
3. Uganda: Archbishop Orombi's Priorities Are Wrong
4. Côte d'Ivoire: American Embassy's National Daily Press Review
5. Ethiopia: Political Landscape Worrying
6. Zimbabwe: No Support for UN Arms Embargo By China
7. Sudan: New UN-AU Chief Mediator for Darfur Appointed
8. Ghana: Scholarship Facility for ICT Students
9. Africa: Obama 'Reframes the Black Question'
10. Namibia: LLD's Striking Workers Suspended
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Friday, June 13, 2008
ASSET PROTECTION IMPORTANT PART OF PLANNING
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Last week, I began my discussion of asset protection. In Florida, property owned by both spouses and purchased by both spouses while married is considered tenancy by the entireties property, which is not subject to the debts of one spouse. Many couples rely on tenancy by the entirety property as their primary source of asset protection. However, reliance on this concept may be misplaced.
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First, a creditor may be able to obtain a judgment against both spouses and then be able to collect from their joint assets. For example, perhaps the spouse works as the bookkeeper for the business and is listed in the Secretary of State's records as the assistant treasurer of the business in order to be able to write checks. The disgruntled plaintiff could then sue both spouses as officers of the corporation. Or perhaps the automobile is owned in joint name, subjecting any vehicle accident caused by either spouse to liability for both spouses as owners of the car or truck. Each spouse should be the sole owner of the vehicle he or she drives in order to insulate the other spouse from liability. If both spouses are sued, tenancy by the entirety property will offer no protection from judgment creditors.
Second, what if the non-debtor spouse dies while the action is pending against the debtor spouse? What if the non-debtor spouse dies while the plaintiff is able to pursue the collection of the judgment for the 20 years the judgment may remain on the record? If the couple becomes divorced, any outright disposition of property received by the debtor spouse will be lost to the judgment creditor. If a parent of the debtor spouse dies, without a proper dynasty trust, any inheritance left outright to the debtor will be lost to the creditor. What if the law changes to weaken tenancy by the entireties protection?
NOTE: ASPECT OF ASSET ALLOCATION MUST BE STUDIED CAREFULLY.
This raises another aspect of asset protection called entities planning. When deciding how to organize your business or how to own investment property, the attorney should educate the client on the amount of asset protection that various business entities afford. Conducting your business as a sole proprietorship has no asset protection. Conducting your business as a general partnership not only offers no asset protection, but may obligate a partner for the mistakes and liabilities of their other partner.
Conducting your business as a corporation may offer some asset protection for inside liabilities. If, for example, an employee in a home remodeling corporation causes a work-related vehicle accident, the injured party can collect against the assets owned by the corporation but not from the outside investments of the owners or shareholders of the corporation, unless there is independent liability or wrongdoing by the owner or shareholder. Whether the corporation is a Sub-S corporation or a traditional C corporation does not matter. That distinction is relevant only to the manner of paying income taxes. The problem is if an owner has a judgment entered against him or her for wrongdoing that has nothing to do with the business, called an outside liability, the creditor may eventually seize the stock of the corporation owned by that person and take control of the business, even liquidating the business to pay off the judgment. Corporate ownership offers no protection from outside liabilities.
If the business is conducted as a Limited Liability Corporation, or LLC, or by a Family Limited Partnership, or FLP, there is some protection from outside liabilities. A judgment creditor who obtains a judgment against one of the owners of a LLC or a FLP is limited to obtaining a charging order against the partnership. The law says that a partnership cannot be forced to accept an unwanted person as the partner. The charging order is like a lien on distributions only when the partners elect to make a distribution, but cannot force the partners to make distributions. If the creditor obtains a judgment, they must wait to collect until the partners make a distribution to the partners, which could be many years. This inability to collect may bring about a more favorable settlement.
The charging order protection does not protect from inside liabilities. For example, if a person is injured in a store or rental home, the owner may be sued. If the store or rental is owned by a LLC or FLP, the assets of the entity are liable for any judgment. Good entity planning would be to have every store or every rental owned by a separate LLC. If one LLC is sued, the other stores or rental homes owned by other LLCs would not be at risk, as long as the formalities of the entity are followed and there is no co-mingling among the entities. Hot assets, such as boats or airplanes, are often owned by a separate LLC and each LLC is owned by a FLP. Each LLC can be set up with very little equity if the equity is borrowed out by the FLP or individual owner of the LLC, called equity-stripping. The owner of the LLC can be an offshore trust set up in a jurisdiction which makes penetration by U.S. courts more difficult. In 10 states, an individual may use an irrevocable asset protection trust which allows persons to place their assets beyond the reach of their creditors during their lifetime. At present, Florida does not have legislation to allow this method of asset protection.
Some have suggested that even tenancy by the entireties property can be owned by a LLC or FLP, so that if the tenancy by the entirety property is compromised by law change, by death of one spouse or by divorce, there would at least be charging order protection.
Although the primary purpose of leaving assets at death in a dynasty trust is to make sure the assets are not added to the size of the beneficiary's estate for estate tax purposes, the dynasty trust also provides asset protection for future generations, although not for the trustmaker. For example, if a widow or widower leaves his or her $2 million estate to his or her two children, and if either child already has his or her own estate in excess of the $2 million lifetime exclusion, or unified credit amount, the extra million inherited would cause more than $450,000 in estate tax when the child dies and leaves the estate to the grandchild, under present law. This tax can be avoided if the funds are not left outright to the child, but instead left in a dynasty, or generation skipping trust.
Because the trust is designed to avoid the assets being considered the assets of the beneficiary for future estate tax and generation skipping tax purposes, by making the assets available only in the discretion of the trustee on an ascertainable standard, the assets cannot be seized by judgment creditors of the beneficiary. The assets are also protected from divorce proceedings or the bankruptcy of the beneficiary. Upon the death of the trustmaker, the surviving spouse may also receive this asset protection for assets passing through the family or by-pass trust. Anyone considering a revocable trust for estate planning should ask the attorney to explain the important benefits of this asset protection planning for a spouse and children.
Another type of asset protection for the assets of a disabled person is the d(4)a special needs trust authorized by federal law, about which I have written extensively in past articles, available through the archives section of www.news-press.com.
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Asset protection important part of planning
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Last week, I began my discussion of asset protection. In Florida, property owned by both spouses and purchased by both spouses while married is considered tenancy by the entireties property, which is not subject to the debts of one spouse. Many couples rely on tenancy by the entirety property as their primary source of asset protection. However, reliance on this concept may be misplaced.
Advertisement
First, a creditor may be able to obtain a judgment against both spouses and then be able to collect from their joint assets. For example, perhaps the spouse works as the bookkeeper for the business and is listed in the Secretary of State's records as the assistant treasurer of the business in order to be able to write checks. The disgruntled plaintiff could then sue both spouses as officers of the corporation. Or perhaps the automobile is owned in joint name, subjecting any vehicle accident caused by either spouse to liability for both spouses as owners of the car or truck. Each spouse should be the sole owner of the vehicle he or she drives in order to insulate the other spouse from liability. If both spouses are sued, tenancy by the entirety property will offer no protection from judgment creditors.
Second, what if the non-debtor spouse dies while the action is pending against the debtor spouse? What if the non-debtor spouse dies while the plaintiff is able to pursue the collection of the judgment for the 20 years the judgment may remain on the record? If the couple becomes divorced, any outright disposition of property received by the debtor spouse will be lost to the judgment creditor. If a parent of the debtor spouse dies, without a proper dynasty trust, any inheritance left outright to the debtor will be lost to the creditor. What if the law changes to weaken tenancy by the entireties protection?
NOTE: ASPECT OF ASSET ALLOCATION MUST BE STUDIED CAREFULLY.
This raises another aspect of asset protection called entities planning. When deciding how to organize your business or how to own investment property, the attorney should educate the client on the amount of asset protection that various business entities afford. Conducting your business as a sole proprietorship has no asset protection. Conducting your business as a general partnership not only offers no asset protection, but may obligate a partner for the mistakes and liabilities of their other partner.
Conducting your business as a corporation may offer some asset protection for inside liabilities. If, for example, an employee in a home remodeling corporation causes a work-related vehicle accident, the injured party can collect against the assets owned by the corporation but not from the outside investments of the owners or shareholders of the corporation, unless there is independent liability or wrongdoing by the owner or shareholder. Whether the corporation is a Sub-S corporation or a traditional C corporation does not matter. That distinction is relevant only to the manner of paying income taxes. The problem is if an owner has a judgment entered against him or her for wrongdoing that has nothing to do with the business, called an outside liability, the creditor may eventually seize the stock of the corporation owned by that person and take control of the business, even liquidating the business to pay off the judgment. Corporate ownership offers no protection from outside liabilities.
If the business is conducted as a Limited Liability Corporation, or LLC, or by a Family Limited Partnership, or FLP, there is some protection from outside liabilities. A judgment creditor who obtains a judgment against one of the owners of a LLC or a FLP is limited to obtaining a charging order against the partnership. The law says that a partnership cannot be forced to accept an unwanted person as the partner. The charging order is like a lien on distributions only when the partners elect to make a distribution, but cannot force the partners to make distributions. If the creditor obtains a judgment, they must wait to collect until the partners make a distribution to the partners, which could be many years. This inability to collect may bring about a more favorable settlement.
The charging order protection does not protect from inside liabilities. For example, if a person is injured in a store or rental home, the owner may be sued. If the store or rental is owned by a LLC or FLP, the assets of the entity are liable for any judgment. Good entity planning would be to have every store or every rental owned by a separate LLC. If one LLC is sued, the other stores or rental homes owned by other LLCs would not be at risk, as long as the formalities of the entity are followed and there is no co-mingling among the entities. Hot assets, such as boats or airplanes, are often owned by a separate LLC and each LLC is owned by a FLP. Each LLC can be set up with very little equity if the equity is borrowed out by the FLP or individual owner of the LLC, called equity-stripping. The owner of the LLC can be an offshore trust set up in a jurisdiction which makes penetration by U.S. courts more difficult. In 10 states, an individual may use an irrevocable asset protection trust which allows persons to place their assets beyond the reach of their creditors during their lifetime. At present, Florida does not have legislation to allow this method of asset protection.
Some have suggested that even tenancy by the entireties property can be owned by a LLC or FLP, so that if the tenancy by the entirety property is compromised by law change, by death of one spouse or by divorce, there would at least be charging order protection.
Although the primary purpose of leaving assets at death in a dynasty trust is to make sure the assets are not added to the size of the beneficiary's estate for estate tax purposes, the dynasty trust also provides asset protection for future generations, although not for the trustmaker. For example, if a widow or widower leaves his or her $2 million estate to his or her two children, and if either child already has his or her own estate in excess of the $2 million lifetime exclusion, or unified credit amount, the extra million inherited would cause more than $450,000 in estate tax when the child dies and leaves the estate to the grandchild, under present law. This tax can be avoided if the funds are not left outright to the child, but instead left in a dynasty, or generation skipping trust.
Because the trust is designed to avoid the assets being considered the assets of the beneficiary for future estate tax and generation skipping tax purposes, by making the assets available only in the discretion of the trustee on an ascertainable standard, the assets cannot be seized by judgment creditors of the beneficiary. The assets are also protected from divorce proceedings or the bankruptcy of the beneficiary. Upon the death of the trustmaker, the surviving spouse may also receive this asset protection for assets passing through the family or by-pass trust. Anyone considering a revocable trust for estate planning should ask the attorney to explain the important benefits of this asset protection planning for a spouse and children.
Another type of asset protection for the assets of a disabled person is the d(4)a special needs trust authorized by federal law, about which I have written extensively in past articles, available through the archives section of www.news-press.com.
NOTE: IMPORTANT TO LEARN FROM TAX ATTORNEY.
-William Edy is a tax attorney, a certified financial planner and a certified elder law attorney in Lee County. He may be contacted online for article ideas and questions. Since e-mail is not secured, do not send confidential information by e-mail. This article should not be a substitute for advice from your own attorney.
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FOREX-DOLLAR SLIDES AS JOBS REPORT DIMS RATE HIKE OUTLOOK
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FOREX-Dollar slides as jobs report dims rate hike outlook
Fri Jun 6, 2008 12:26pm EDT
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* Dollar falls as U.S. jobless rate jumps in May
* Dollar set for worst weekly loss vs EUR since late March
* Non-farm payroll losses total 49,000
By Gertrude Chavez-Dreyfuss
NEW YORK, June 6 (Reuters) - The dollar fell across the board on Friday as a big jump in the U.S. jobless rate underscored the economy's weakness, which could prevent the Federal Reserve from raising interest rates later this year.
The Labor Department report, which also showed job losses for a fifth straight month, further undermined the outlook for the dollar, whose interest rate yield has shrunk as the Federal Reserve slashed benchmark overnight rates by a total of 325 basis points since September.
NOTE: JOBLESS RATE IN THE U.S. ARE EFFECTS OF DOLLAR SHRINKAGE.
The data also revived debates about the chances of a U.S. recession, and analysts said the Fed may have to address the economy's persistent sluggishness with another quarter-point easing.
"Today's unemployment report was the first time in recent memory that the unemployment rate overshadowed the non-farm payrolls number," said Michael Woolfolk, senior currency strategist, at Bank of New York Mellon in New York. Continued...
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FOREX-Dollar slides as jobs report dims rate hike outlook
Fri Jun 6, 2008 12:26pm EDT
Email | Print |
Share
| Reprints | Single Page| Recommend (-)
[-] Text [+]
powered by Sphere Sphere
Market News
Oil, CPI could spell rough ride for stocks | Video
Oil zooms nearly 9 percent higher to record $139 | Video
Dow falls 394.64 points on jobless rate, record oil | Video
More Business & Investing News...
(Recasts, updates prices, adds comment, byline)
* Dollar falls as U.S. jobless rate jumps in May
* Dollar set for worst weekly loss vs EUR since late March
* Non-farm payroll losses total 49,000
By Gertrude Chavez-Dreyfuss
NEW YORK, June 6 (Reuters) - The dollar fell across the board on Friday as a big jump in the U.S. jobless rate underscored the economy's weakness, which could prevent the Federal Reserve from raising interest rates later this year.
The Labor Department report, which also showed job losses for a fifth straight month, further undermined the outlook for the dollar, whose interest rate yield has shrunk as the Federal Reserve slashed benchmark overnight rates by a total of 325 basis points since September.
NOTE: JOBLESS RATE IN THE U.S. ARE EFFECTS OF DOLLAR SHRINKAGE.
The data also revived debates about the chances of a U.S. recession, and analysts said the Fed may have to address the economy's persistent sluggishness with another quarter-point easing.
"Today's unemployment report was the first time in recent memory that the unemployment rate overshadowed the non-farm payrolls number," said Michael Woolfolk, senior currency strategist, at Bank of New York Mellon in New York. Continued...
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Previous Page 1 | 2 | 3 Next Page
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Next Article: FOREX-Dollar falls as US jobless rate shoots up
More US Dollar Report
FOREX-Grim jobs data, ECB rate hike talk pummel dollar
FOREX-Dollar falls as US jobless rate shoots up
CORRECTED-FOREX-Dollar falls after jump in jobless rate
FOREX-Trichet's rate shocker keeps euro on firm ground
More US Dollar Report News...
Related Blog Posts
Euro Surges After ECB's Trichet Signals July Rate Hike
Grace Cheng's Finance Blog
Dollar implodes as Trichet tips July hike
Thomson FX Hub | Where money talks
Dollar implodes as Trichet tips July hike
Thomson FX Hub | Where money talks
Bernanke Says Rate `Well Positioned,' Watching Dollar
FeedTheBull - Stock Market News
Unemployment rate jumps to 5.5 percent in May
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HOW TO DEAL WITH KNEE-JERK MARKET REACTIONS
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How to Deal with Knee-Jerk Market Reactions
by Jack Crooks 06-07-08
Jack Crooks
This past week was a roller coaster ride in the currency markets, and it sure ended with a bang. I'll get to the big news in a second. And I'll also tell you what to make of this market.
NOTE: CROOKS IS FAMOUS IN ANALYZING THE MARKET. HENCE, HIS COMMENTARY ALWAYS GIVES WEIGHT.
But first, I want to do a quick day-by-day rundown of what happened in the currency markets ...
Tuesday:
Ben Bernanke revealed new concern over inflation and spoke directly about the weaker dollar.
Knee-jerk reaction in the currency markets: The dollar jumped.
Thursday:
European Central Bank President Trichet signaled interest rate hikes may come as early as July.
Knee-jerk reaction in the currency markets: The euro soared.
Yesterday:
U.S. Non-farm Payrolls were reported down 49,000 (better-than-expected) for the month of May. But U.S. unemployment leapt by half a percentage point to 5.5% (worse-than-expected).
Knee-jerk reaction: The dollar tumbled. The Dow lost almost 400 points. And on the same day, crude oil skyrocketed by more than $10 a barrel!
Looks like it's time to queue up the recession talk again. And don't forget that inflation is a big concern — Big Ben even said so!
Did this tag-team of Fed inflation rhetoric and freshly disappointing economic data open up the flood gates? Sure might have.
Federal Reserve Chairman Ben Bernanke's leadership ability is being called into question as crude oil prices explode and unemployment soars.
Federal Reserve Chairman Ben Bernanke's leadership ability is being called into question as crude oil prices explode and unemployment soars.
Stocks don't like it when the Fed gets lovey-dovey with inflation. In an already tight lending environment, if the Fed leans toward drying up access to money (or away from doling it out freely), who's going to keep what little leftover cash they have invested in bogged-down companies that still may be many months away from honest-to-goodness recovery?
It's been surprising how well stocks have held up so far. It's likely the keep-hope-alive mentality was buoying the Dow and the S&P. But with every new fundamental defeat how long can investors' minds stay focused on the light at the end of the tunnel? It's dimming rather quickly and should be practically invisible if the Fed keeps its attention on rising prices.
And for the buck, it comes down to one thing: Sentiment. We can argue all day for a dollar rally, or a collapse to new lows. And we have. But what matters is how the dollar is perceived by those who are trading it.
If you're off trading solo it's not always easy to keep a firm grip on market sentiment.
But protecting against most of the bad and positioning for most of the good is a crucial step toward successful trading.
External Sponsorship
Smart Investors Profit Overseas ...
Live in real luxury where waves roll into your "backyard" ... where your own gardener prunes your hollyhocks and your own maid serves your dinner in your own piece of paradise. You don't need to be a millionaire to afford this ... in fact, you can live this life on just $19 a day ...
Click here for more information ...
Here's a little guideline for today's markets ...
Hope Can Hurt; Fear Can Help
I read a book on trading many years ago that said before every trading day begins, you must ask yourself: How badly can I screw-up my account today?
It sounded a bit blunt, and an odd way to start the morning. But I've found this simple approach is a great way to focus on the key element that will determine long-term success in any asset market — stocks, bonds, commodities, currencies, and even real estate.
It's risk.
In terms of the risks today, you probably have your own personal checklist. You might be including:
* Inflation fears brewing.
* Potential time-bomb of derivatives.
* An overvalued stock market.
* Falling real estate values.
* On and on into infinitum ...
John Pierpont Morgan (April 17, 1837 – March 31, 1913) was an American financier, banker, philanthropist, and art collector who dominated corporate finance and industrial consolidation during his time.
John Pierpont Morgan (April 17, 1837 – March 31, 1913) was an American financier, banker, philanthropist, and art collector who dominated corporate finance and industrial consolidation during his time.
No doubt these are market risks. And they do inspire fear. But there's nothing we can do to fully eliminate risks. We can neither keep them from happening, nor forecast them with complete accuracy. But you can control the small stuff, like your individual account risk.
It's obvious some of us can handle more risk than others. The best single phrase about how much investment risk one should take comes from J.P. Morgan, who told a worried friend, "sell down to your sleeping point."
Translation: If you're lying awake at night, worrying about your investments, you are carrying too much risk.
I have found the simple "screw up your account" mantra very useful for risk control, so much so that I have it printed across the top of my "trade sheets" where I record each of my trades, risk levels, and reasons for the trade.
Why does it help me? Because it forces me to define the level of risk I will take BEFORE I enter an investment position. The reason I have capitalized "before" is because before you enter the investment you still have at least a degree of objectivity left in your brain.
AFTER you enter an investment position, your objectivity is flushed down the drain and replaced with something very dangerous — hope.
NOTE: IMPORTANT CONSIDERATION BEFORE TRADING...
Here's an example of how I define my risk in a currency trade BEFORE putting on a trade ...
I look for a key technical level — some type of chart support area, or basic trend line that will tell me that the dynamics of supply and demand in the market have changed. Or put another way: if prices reach this level I am wrong because the market has proven me wrong.
At this point I'm out of the trade with a loss, period, end of story. I can always reenter the trade if it makes sense. But because I have exited, I somewhat regain that modicum of objectivity to better evaluate price action.
Always remember: Being in cash is an investment position; and it's sometimes the best position!
There is an old market adage: Bull markets climb a wall of worry, while bear markets flow down a river of hope. It's natural to hope our losses will subside and be afraid our profits will go away. And it's also why we are tricked by Mr. Market.
Legendary Wall Street trader Jesse Livermore summed it up best when he talked about reversing our natural impulses in the market:
"When the market goes against you, you hope that every day will be the last day — and you lose more than you should had you not listened to hope. And when the market goes your way, you become fearful that the next day will take away your profit and you get out — too soon. The successful trader has to fight these two deep-seated instincts."
We must turn hope and fear inside out. We must fear our losses will get bigger and cut them short. And we must hope that our profits get bigger and let them run. In these choppy markets, defining risk beforehand is the best thing you can do.
Best wishes,
Jack
About Money and Markets
For more information and archived issues, visit http://www.moneyandmarkets.com
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<< Go Back • Print This Page
How to Deal with Knee-Jerk Market Reactions
by Jack Crooks 06-07-08
Jack Crooks
This past week was a roller coaster ride in the currency markets, and it sure ended with a bang. I'll get to the big news in a second. And I'll also tell you what to make of this market.
NOTE: CROOKS IS FAMOUS IN ANALYZING THE MARKET. HENCE, HIS COMMENTARY ALWAYS GIVES WEIGHT.
But first, I want to do a quick day-by-day rundown of what happened in the currency markets ...
Tuesday:
Ben Bernanke revealed new concern over inflation and spoke directly about the weaker dollar.
Knee-jerk reaction in the currency markets: The dollar jumped.
Thursday:
European Central Bank President Trichet signaled interest rate hikes may come as early as July.
Knee-jerk reaction in the currency markets: The euro soared.
Yesterday:
U.S. Non-farm Payrolls were reported down 49,000 (better-than-expected) for the month of May. But U.S. unemployment leapt by half a percentage point to 5.5% (worse-than-expected).
Knee-jerk reaction: The dollar tumbled. The Dow lost almost 400 points. And on the same day, crude oil skyrocketed by more than $10 a barrel!
Looks like it's time to queue up the recession talk again. And don't forget that inflation is a big concern — Big Ben even said so!
Did this tag-team of Fed inflation rhetoric and freshly disappointing economic data open up the flood gates? Sure might have.
Federal Reserve Chairman Ben Bernanke's leadership ability is being called into question as crude oil prices explode and unemployment soars.
Federal Reserve Chairman Ben Bernanke's leadership ability is being called into question as crude oil prices explode and unemployment soars.
Stocks don't like it when the Fed gets lovey-dovey with inflation. In an already tight lending environment, if the Fed leans toward drying up access to money (or away from doling it out freely), who's going to keep what little leftover cash they have invested in bogged-down companies that still may be many months away from honest-to-goodness recovery?
It's been surprising how well stocks have held up so far. It's likely the keep-hope-alive mentality was buoying the Dow and the S&P. But with every new fundamental defeat how long can investors' minds stay focused on the light at the end of the tunnel? It's dimming rather quickly and should be practically invisible if the Fed keeps its attention on rising prices.
And for the buck, it comes down to one thing: Sentiment. We can argue all day for a dollar rally, or a collapse to new lows. And we have. But what matters is how the dollar is perceived by those who are trading it.
If you're off trading solo it's not always easy to keep a firm grip on market sentiment.
But protecting against most of the bad and positioning for most of the good is a crucial step toward successful trading.
External Sponsorship
Smart Investors Profit Overseas ...
Live in real luxury where waves roll into your "backyard" ... where your own gardener prunes your hollyhocks and your own maid serves your dinner in your own piece of paradise. You don't need to be a millionaire to afford this ... in fact, you can live this life on just $19 a day ...
Click here for more information ...
Here's a little guideline for today's markets ...
Hope Can Hurt; Fear Can Help
I read a book on trading many years ago that said before every trading day begins, you must ask yourself: How badly can I screw-up my account today?
It sounded a bit blunt, and an odd way to start the morning. But I've found this simple approach is a great way to focus on the key element that will determine long-term success in any asset market — stocks, bonds, commodities, currencies, and even real estate.
It's risk.
In terms of the risks today, you probably have your own personal checklist. You might be including:
* Inflation fears brewing.
* Potential time-bomb of derivatives.
* An overvalued stock market.
* Falling real estate values.
* On and on into infinitum ...
John Pierpont Morgan (April 17, 1837 – March 31, 1913) was an American financier, banker, philanthropist, and art collector who dominated corporate finance and industrial consolidation during his time.
John Pierpont Morgan (April 17, 1837 – March 31, 1913) was an American financier, banker, philanthropist, and art collector who dominated corporate finance and industrial consolidation during his time.
No doubt these are market risks. And they do inspire fear. But there's nothing we can do to fully eliminate risks. We can neither keep them from happening, nor forecast them with complete accuracy. But you can control the small stuff, like your individual account risk.
It's obvious some of us can handle more risk than others. The best single phrase about how much investment risk one should take comes from J.P. Morgan, who told a worried friend, "sell down to your sleeping point."
Translation: If you're lying awake at night, worrying about your investments, you are carrying too much risk.
I have found the simple "screw up your account" mantra very useful for risk control, so much so that I have it printed across the top of my "trade sheets" where I record each of my trades, risk levels, and reasons for the trade.
Why does it help me? Because it forces me to define the level of risk I will take BEFORE I enter an investment position. The reason I have capitalized "before" is because before you enter the investment you still have at least a degree of objectivity left in your brain.
AFTER you enter an investment position, your objectivity is flushed down the drain and replaced with something very dangerous — hope.
NOTE: IMPORTANT CONSIDERATION BEFORE TRADING...
Here's an example of how I define my risk in a currency trade BEFORE putting on a trade ...
I look for a key technical level — some type of chart support area, or basic trend line that will tell me that the dynamics of supply and demand in the market have changed. Or put another way: if prices reach this level I am wrong because the market has proven me wrong.
At this point I'm out of the trade with a loss, period, end of story. I can always reenter the trade if it makes sense. But because I have exited, I somewhat regain that modicum of objectivity to better evaluate price action.
Always remember: Being in cash is an investment position; and it's sometimes the best position!
There is an old market adage: Bull markets climb a wall of worry, while bear markets flow down a river of hope. It's natural to hope our losses will subside and be afraid our profits will go away. And it's also why we are tricked by Mr. Market.
Legendary Wall Street trader Jesse Livermore summed it up best when he talked about reversing our natural impulses in the market:
"When the market goes against you, you hope that every day will be the last day — and you lose more than you should had you not listened to hope. And when the market goes your way, you become fearful that the next day will take away your profit and you get out — too soon. The successful trader has to fight these two deep-seated instincts."
We must turn hope and fear inside out. We must fear our losses will get bigger and cut them short. And we must hope that our profits get bigger and let them run. In these choppy markets, defining risk beforehand is the best thing you can do.
Best wishes,
Jack
About Money and Markets
For more information and archived issues, visit http://www.moneyandmarkets.com
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Mathias Korzan, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
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