Over the past year or so, the stock market has increased with little resistance, primarily due to quantitative easing by the Federal Reserve. With stocks moving up in almost parabolic fashion, this is a good time to reflect on your capacity for risk: Are you prepared to experience a possible 20-30% drop in your portfolio? It is not a question of “if” but “when” these market corrections will occur, as they are part and parcel of economic cycles. Not only has the Fed’s easing policy possibly delayed this sort of correction, but is perhaps also exacerbating it by forcing investors further out on the risk curve in a search for more income or yield.
The implementation of Obamacare has resulted in many physician groups being bought out by their local hospitals. One of the factors driving this transition is that hospitals have greater negotiating power for their reimbursement rates, resulting in higher prices and thus enhanced revenues. Thus procedures administered by hospital owned physician practices tend to be substantially more expensive than privately owned practices. We experienced this first hand when our son, who needed a quick x-ray of his leg per the request of his pediatrician, was charged roughly $1,000 by the hospital-owned radiology department. We later discovered that the same test would have been included in his office visit to the orthopedist. Note to self, doctors are trained to provide medical care; they do not necessarily know where their patients can obtain the lowest price for the services they recommend.
This reality hit home again recently when my husband needed to get a routine cardiac stress test. His cardiologist, who he had been seeing for some time, had just been bought out by a local hospital. Since we have an HSA (Health Savings Account) tied to a high deductible health plan (HDHP), his individual out of pocket costs are $7,000 a year, after which medical expenses are paid in full. Due to a concern over exorbitant costs for the test, my husband switched to a private cardiologist who performed the stress test in his office at a cost of $2000. The cost for the procedure administered via the hospital—–$8,600! We would have unnecessarily gone out of pocket $7,000 for a standard treadmill nuclear stress test that could be obtained for a fraction of the cost. Thankfully, we knew enough to shop around and are happy to report that the test was perfectly normal.
So how does a patient protect himself?
The best way to combat medical inflation is to compare prices among the options you have in your area. Ask your doctor if he or she can recommend a private (non-hospital owned) practice that can perform the prescribed procedure. Call each of the billing offices and ask them what their approved charges for the procedure or service are with your insurance company, as each insurance company negotiates a different rate with each provider. (Note that it is unlikely that your insurance company will give you this information as they are not allowed to disclose it, so it requires more leg work on your part). Compare the differences in the stated cost with other qualitative factors such as your comfort level and confidence in your physician as well as location, admitting privileges, etc.
Also, it is important to realize that if your doctor is in a practice that is hospital-owned, he or she will likely be only referring you to other physicians in the hospital network.
It appears that, contrary to intentions of this act, cost containment will not likely be achieved if this is the new paradigm. Keep your health costs low by investigating all of your options and being an informed consumer.
The following chart compiled by Goldman Sachs tracks 10 year Treasury bond yields throughout history starting in the late 1700s.
Note that, for most Baby Boomers, during of our lifetimes we have primarily experienced rates moving lower. As bond yields go down, prices of bonds go up. But the past 40+ years was a bit of an anomaly when you look at the peak in the context of historical yields. What does it mean for investors today? Total bond returns (a combination of yields and capital appreciation) will be lower going forward and it will be tougher to derive income from a bond only portfolio.
The implication is that bonds will be valued more for their ability to act as a portfolio “shock absorber” as opposed to an integral source of retirement income. This is important due to the volatility and current relatively high stock market valuations.
It also suggests, that investors will likely want to move toward higher equity allocations (stocks and stock mutual funds) once valuations are more favorable, to achieve higher total returns from their investment portfolio. Although losses on high quality bonds were rare in most recent history, future interest rate increases will result in losses to bond portfolios. Holding individual bonds (especially for conservative portfolios) may be one way to immunize yourself from this risk.
A hacker was able to issue a fake tweet after hacking into the Associated Press Twitter account this week. Apparently, the incident was preceded by a phishing attempt about a half an hour earlier. This incident serves as a reminder to never respond to emails that ask for personal information or click on a link unless you are sure that it is legitimate. When in doubt, double check to make sure the request is from someone you trust. Here are some tips to keep you protected.
Considering an early retirement? Before you bail, think through these key considerations to ensure you do not regret your decision.
Lately, there appears to an epidemic of “Baby Boomers Burnout”. Corporations are asking for more productivity per worker so folks are working longer and harder but, after inflation, are being paid less for their efforts. Small businesses are deciding to close their doors rather than face increased complexity and costs of government regulation. Employees that engage in physical labor may not be able to keep up the pace as their health declines.
An early retirement sounds great on paper, but in reality, it can be tough emotionally as well as physically, not to mention the increased risk of possibly outliving your money in the “new normal” world of longer lifespans, lower expected investment rates of returns, and possible Medicare and Social Security reform. Here are some items you should consider before making the decision to retire early.
Danger, there’s a breakdown dead ahead
Maybe you’re in way above your head …
….I’m sorry but it don’t make sense
You’re pullin’ just right out on first offense
Ooh, baby, play it smart….
Boz Scaggs- Breakdown Dead Ahead
The Federal Reserve’s quantitative easing program (QE) has lowered treasury bond yields to historically miniscule levels. Retirees are struggling to squeeze income out of a very dry lemon of a bond portfolio. Safe high quality bonds and CDs don’t even account for inflation. This prolonged QE dance has forced many investors to substitute their high quality bonds for high yielding bonds such as junk bonds and floating rate bonds. They have also ventured into dividend paying stocks and mutual funds as a replacement for bonds. While this may increase their “yield” or income, it also increases the risk of their overall portfolio. These lower quality bonds tend to behave like stocks when markets are under stress.