Good Bye, Alan!

Good Bye, Alan!

















Thanks for giving us a recession-free stretch of 18 years, reminding us of our 'irrational exhuberance' at times when we acted like fools running after our greeds, and above all, for providing us a comfortable sense of your God-like presence on top of our extremely uncertain, unfathomable, almost chaotic monetary matters mixed up with unforseeable future.

We all will miss you! Thanks for your service to our great nation!

Resource: Retirement Benefit

Today we post some contact addresses and resources related to retirement benefits.

Obviously, our first stop should be the
Social Security Administration (800) 772-1213
which has 1,300 offices across the nation and might be the fastest route to your question or to order printed material related to your retirement.

National Organization of Social Security Claimants’ Representatives
(800) 431-2804 is a referral service directing callers to attorneys who handle Social Security Cases.

For an explanation of your rights under federal law you may visit
Pension and Welfare Benefits Administration, Department of labor,
(202) 219-8840.

Pension Benefits Guaranty Corporation (PBGC) (202) 326-4040
answers questions and offers advice on pensions.

Pensionrights.org (202) 296-3778
is a legal referral service for pension related problems.

Slow Growth, Fed, Mortgage

Today the Commerce Department reported that the growth in the U.S. economy slowed dramatically to a 1.1% annual rate in the 4th quarter, the weakest growth in three years. The slowdown in real gross domestic product from 4.1% in the 3rd quarter to a mere 1.1% in the 4th was largely due to weak auto sales, slower business investment, a rise in imports and a large drop in federal spending.

The report may put the Federal Open Market Committee in a dilemma. If growth were to remain tepid, the Fed would be obligated to hold rates steady or even cut them in their next meeting on January 31st. But the continued inflation pressures, in particular from oil price, may argue for higher rates.

In expectation of another quarter point hike in short term interest rate by the Federal Reserve in their next meeting, the average mortgage rate has moved up a bit this week after 6 weeks of continuous decline.

According to Freddie Mac's weekly report, the national average rate on the benchmark 30-year mortgage was 6.12%, up from 6.1% a week earlier. The 15-year mortgage, a popular refinancing choice, also ticked up, to 5.7% from 5.67%. The long-term rates are still below December's monthly average and are still continuing to fuel the housing market. Both loans remain above their year-ago levels, however, when the 30-year averaged 5.67% and the 15-year stood at 5.15.%

The 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.75%, unchanged from last week. The 1-year Treasury-indexed ARMs averaged 5.2%, up from 5.18% of last week.

40-Year Mortgage

The 40-year mortgages, for years a niche product, is finally set to have a strong presence in the mainstream mortgage market. Forty-year mortgages have lower monthy payments than the well-known 30-year version, altough they cost more over the life of the loan because the borrower pays interest for 10 years longer. With the lower monthly payments, they are seen as a tool to allow people to buy homes that are unaffordable with 30-year mortgages. Fannie Mae stuck its toe in the 40-year mortgage pool a year and half ago when it started a pilot program to buy the long loans from 22 credit unions. Now Fannie Mae has really taken the plunge, and will buy conforming 40-year mortgages from any qualified lender.

It's not a sure bet that 40-year loans will catch on. First, the interest rates are slightly higher--usually an eighth to a quarter of a percentage point. Second, tacking 10 years onto the payment schedule doesn't save all that much money every month.

Its chief competition was interest-only loans which occupied a big chunk of the mortgage market in high-price cities as buyers hunted desperately for ways to afford more expensive houses. But with rising interest rate the advantages of having an interest-only loan are also vaporing away.

Still, there are a plenty of home buyers who might barely stray outside of those guidlines when applying for a 30-year mortgage--for example, if the house payment would be 29% of monthly income, a 40-year loan might allow a borrower to qualify by sliding under the 28% threshold. The real difference is quite small, though: On a $200,000 loan, the reduction in monthly mortgage would amount to less than 64$ a month on a 40-year, fixed-rate mortgage at 6.25% compared to a 30-year fixed at 6%. Over the lifetime of the loan you'll end up paying much more in total interest, though.

Health Savings Account

HSA or Health Savings Account is basically an IRA account for current and future health-care expenses and supposed to help retirees pay for just a fraction of future health-care expenses. HSAs were created by the Medicare bill signed by President Bush on December 8, 2003.

To be eligible for a Health Savings Account, an individual must be covered by a HSA-qualified High Deductible Health Plan (HDHP) and must not be covered by other health insurance that is not an HDHP. The money contributed is tax-deductible, grows tax-free and can be withdrawn tax-free for medical expenses. A worker who can contribute $1,000 per year for 40 years in an HSA could accumulate $133,400 to pay for future health-care expenses. If the same worker contributes $2,700 per year, the HSA nest egg could grow to a whopping $475,000.

For 2006, the most you can put into an HSA is $2,700 if you have single coverage and $5,450 for a family. Those amounts will be increased for inflation in future years. For more details consult HSA page of The US Department of Treasury.

What is HDHP?
The HDHP (High Deductible Health Plan) features higher annual deductibles (a minimum of $1,100 for Self and $2,200 for Self and Family coverage) than other traditional health plans. The maximum amount out-of-pocket limits for HDHPs in 2006 is $5000 for self and $10,000 for Self and Family enrollment. You may have the choice of using in-network and out-of-network providers. Using in-network providers will save you money. With the exception of preventive care, you must meet the annual deductible before the plan pays benefits. Preventive care services are generally paid as first dollar coverage or after a small deductible, or copayment. A maximum dollar amount (up to $300, for instance) may apply.

Everbank's Gold CD

In a past posting, we discussed about a new type of CD investment from Everbank, which is based to the value of Dollar. Today we discuss another new type of CD-investment that is based on the value of Gold.

Everbank is an internet bank based in Jacksonville, Florida. Since October the bank is offering another innovative way of investing in gold prices. For a minimum investment of $1,500, Everbank is offering a 5-year certificate of deposit with the yield pegged to gold prices. This offers Gold's upside potential as well as its value as a hedge against inflation and other uncertainties. This financial product is a variant of "principal protected" CDs that are linked to the performance of stock indices such as the Standard and Poor's 500.

The CD's effective yield is equal to the percentage difference between the price of gold at the time of purchase and the average value over the time period that the CD is held. Because the average is used, the yield can potentially increase if the price of gold fluctuates rather than rises steadily. If gold prices reverse course, Everbank limits investors' risk by returning their initial investment if they hold the CD to term. The yield hits zero in that case and investors will have to forfeit a guaranteed 4.7% annual return that they could have earned on a safer traditional 5-year Everbank CD. That's the risk-part of this non-traditional CD investment.

On the other hand this is another investment vehicle for an individual to participate in gold without having to pay storage fees for the commodity, or pay a commission.

Hi Yield Savings

If you have some cash that you donot want to invest in stock or bond, the best option right now is to put it in ING Direct bank which is offering what it calls 'Winter Save Up Sale' that earns you 4.75% APY on new deposits to the bank's Orange Savings Account. This interest rate would be offered to all new Orange Savings Accounts opened by new ING Direct customers or to all existing Orange Savings Accounts belonging to current customers. The interest rate would be valid for any ammount (no mimimum) deposited any time between January 19, 2006 to April 15, 2006 – the Sale Period. After April 15, 2006, all the money in your account will earn the current APY at that time [at present which is 3.80% for old deposits if you had account in that bank].

We feel this is a good way to put your money to work with lucrative rates and enjoy high yield and security of your cash, while always getting access to it. Here are some more banks offering more options for you:

HSBCdirect is giving 4.25% in Money Market Account with minimum deposit of $1 only.
PayPal.com money market account currently has a yield of 4.30% with no minimum (not FDIC insured though)
Emigrant-direct's rate (which was leading until recently) for savings account is 4.00% with no minimum.
MyBankingDirect is giving 4.10% in Money Market Account with minimum deposit of $5000.
MetLife is giving 3.75% in its Money Market Account with minimum deposit of $5000. They are also giving $50 bonus for new accounts.
AmboyDirect is probably trying to give high interest but its conditions (e.g., initial $5000 earn no interest, etc) are so complicated and confusing that we felt it's better to avoid it. If you wish to try to understand what they are trying to say, please check it yourself.

[Note: MyDollar has no connection whatsoever with the above-mentioned banks. We are giving such information only because we think this would be useful to our readers]

Uranium & Precious stocks

The ever-increasing oil and gas prices have sparked a worldwide revival of interest in nuclear power... which is in turn pushing uranium prices and stocks of related compnaies through the roof. Already, raw uranium prices have jumped nearly 500%. But that’s nothing compared to the gains uranium mining companies are enjoying. This list is worth taking a serious look:

• Cameco Corp. (CCJ) : up 1,030% since 2002
• Frontier Development Group (FRG.TO) : up 1,400% since 2004
• International Uranium (IUC.TO) : up 2,600% since 2003
• Strathmore Minerals (STM.V) : up 2,850% since 2003
• UEX Corp. (UEX.TO) : up 4,900% since 2003
• Western Prospector Group (WNP.V) : up 6,100% since 2003

The demand for uranium is growing rapidly. As far as we know, 35 nuclear power reactors are in the planning stages worldwide and proposals for another 35 are on the table of several governments:

• India - 9 under construction, 24 proposed
• South Korea - 8 under construction
• China - 4 under construction, 6 planned, 20 more proposed
• Japan - 3 under construction, 12 planned

It seems the bus has not gone too far away. Should we run to catch it? Well... as always, if you have some spare money which you can put without much of an anxiety, Uranium stocks might be just right for you.

Foreign Investment Funds

It is a good practice to own some foreign stocks thus lowering your risk with diversification and increasing your return. Investors still need to do their homework well on any country and company in which they wish to invest. However, ready access to such research is sometimes very hard to get. Lower dollar in recent months have been favorable for some of the stocks, but if the dollar starts strengthening itself for an extended period, investors may find themselves in troubled water.

American Depository Receipts (ADR) have been a popular investment tool in recent months. The bulk of these listings are from Europe, though emerging markets are increasing in representation. ADRs from China and India have been very popular and successful investments. We can tell you so many names which have consistently produced good return, but, as you know, we always hesitate several times before investing in any individual stock.

Like all wise investors if you take the issue of diversification seriously and wish to put some money in ADRs to receive a chunk of the global rise of economy, we think there is something better than ADRs - That is an Exchange Traded Fund (ETF) for ADRs. In fact, there are four of those.

Nasdaq Financial Products Services and The Bank of New York offers BLDRS, a family of exchange-traded funds ("ETFs") based on The Bank of New York ADR IndexSM, a real-time index tracking U.S. traded depositary receipts (For details visit the ADR IndexSM section of adrbny.com). The BLDRS Fund Family is currently made up of four ETFs, including two market index funds and two regional index funds:

1. BLDRS Emerging Markets 50 ADR Index Fund (ADRE),
2. BLDRS Developed Markets 100 ADR Index Fund(ADRD),
3. BLDRS Europe 100 ADR Index Fund(ADRU) ,
4. BLDRS Asia 50 ADR Index Fund (ADRA).

All of them have very low expense ratio of only 0.30. We think all of these are good long time investments especially for retirement accounts.

VUL Insurance

Continuing our weekly postings on life insurance ....[Our past postings: Life Insurance in general, Term Insurance, Permanent Insurance, Survivorship Life Insurance] Our today's topic is another special kind of permanent life insurance: the variable universal life insurance.

Like Universal life (UL), variable universal life (VUL) offers permanent protection and lets you tailor your death benefit and premium payments to help meet your needs. However, for greater flexibility in building cash value, VUL offers variety of variable investment options in addition to a fixed account. As with any investment product, VUL does not guarentee investment performance or future results, so its cash values will fluctuate. (Always read the prospectus carefully before investing in any variable product.)

Like UL, VUL gives you access to cash values through loans or withdrawals that you can use for your financial goals. And, as with UL, cash values accumulate tax deferred and earnings, if any, are taxable upon withdrawal.

Equity Index Annuity

Today we discuss a special kind of retirement saving: The equity index annuity (EIA). It's a type of deferred annuity. You buy it with money on which you've already paid taxes. The earnings accumulate tax deferred until you with draw the money, presumably in retirement. An EIA bases its returns on a securities market index. Principal plus a minimum return (typically 2.5%) are guaranteed, and the annuity adds a percentage of the index gains if any.

Some EIAs place a cap in how much you earn. When the stock index performs poorly, you get the minimum guaranteed rate; when the index does well you can get the allowed percentage increase or the capped rate.

EIAs fall midway between a fixed annuity (which pays a set interest rate) and a variable annuity, whose performance is as volatile as the underlying investment. EIAs are essentially a fixed annuity with potential gains ranging from a minimum guarentee to a set upper limit. This type of investment is popular when interest rates are low. So, in current situation, it may not look as attractive as it was 2 years back, but still the assurance of a guaranteed return is some shelter many may select as a better option for a retirement vehicle.

Inflation & Mortgage Rate

Interest rates for long-term mortgages slipped lower this week due to some economic-data releases that indicated more subdued inflation in the near term. The shorter-term rates, such as those for adjustable-rate mortgages, remained almost unchanged due to market expectations of another rate hike by the Federal Reserve Board in their next meeting on January 31st.

According to the weekly report from Freddie Mac, the national average rate on the benchmark 30-year fixed mortgage fell to 6.15% from 6.21% a week earlier. This is the 5th straight dip in the rate, although it is still above its year-ago level of 5.74%. This rate is about the same as it was in late October of 2005.

The 15-year fixed-rate loan averaged 5.71%, down from last week's 5.76%. A year earlier, the 15-year loan averaged 5.19%.

The 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.76%, down from 5.78%. A year ago, the five-year ARM averaged 5.05%. The 1-year Treasury-indexed ARMs averaged 5.15%, nearly same as last week's 5.16%. ARMs have been more sensitive to hikes in short-term interest rates from the Federal Reserve over the past year. The rates of ARMs remain considerably higher than year-ago levels, when the average rate on 1-year ARM was 4.1% [Read our past posting on ARM].

College Savings

Many people think that the more you save for your kid's college education, the less likely your child will receive any financial aid. That's simply not true. A big chunk of financial assistance actually comes in the form of loans. So, the more you save the less likely you'll need to borrow.

As long as you save wisely, you can minimize any reduction in your total aid package. One important key is to save in your name, not your child's. The aid formulas count only 5.6% of parental assets vs. as much as 35% of money saved in the student's name. This makes tax-advantaged programs like Coverdell ESA and 529 college savings plan especially useful. Federal Aid Rules regard those accounts as parental assets.

If you have already set up a college fund in your kids' name, you may consider spending the money on your child's behalf well before college (of course, if it's not a very high amount). For example, you may spend the money for SAT preparation or music lessons. At the same time you may deposit a comparable amount in one of those tax-saving programs in your name. The 529 plan is a great savings program with tax advantage.

New iShares ETFs

In December Barclays Global Investors (BGI), the San Francisco-based firm, filed a registration statement for 10 new exchange-traded Funds (ETFs) tracking targeted sectors such as regional banks, aerospace and defense, and home construction. We see a tint of rovalry here: these filing comes after PowerShares Capital Management earlier this year launched several "enhanced index" ETFs investing in some of the same industries as the proposed BGI funds.

The 10 ETFs filed by BGI are:

1. iShares Dow Jones U.S. Oil & Gas Exploration & Production,
2. iShares Dow Jones U.S. Oil Equipment & Services,
3. iShares Dow Jones U.S. Pharmaceuticals,
4. iShares Dow Jones U.S. Health Care Providers,
5. iShares Dow Jones U.S. Medical Devices,
6. iShares Dow Jones U.S. Broker-Dealers,
7. iShares Dow Jones U.S. Insurance,
8. iShares Dow Jones U.S. Regional Banks,
9. iShares Dow Jones U.S. Aerospace & Defense
10. iShares Dow Jones U.S. Home Construction.

Some of the planned BGI funds are similar to recently launched PowerShares ETFs like PowerShares Building & Construction (PKB) , PowerShares Aerospace & Defense (PPA) and PowerShares Energy Exploration & Production (PXE). However, the BGI and PowerShares funds have an important difference between them. The Barclays ETFs are designed as 'passive' index funds and follow traditional indexes from Dow Jones & Co. designed to simply reflect market sectors, while the PowerShares funds attempt to add slight outperformance by 'active' overweighting companies with the best "investment merit." It would be interesting to watch over the next few years which approach performs better in this uncertain world of investment.

Survivorship Life Insurance

Continuing our weekly postings on life insurance ....[Our past postings: Life Insurance in general, Term Insurance, Permanent Insurance]

Our today's topic is a special kind of permanent life insurance: the Survivorship life insurance. Survivor Life policies pay a death benefit only after both insureds die. These policies are typically purchased by couples who have sizable assets and want to maximize the amount they leave to heirs or charities by allowing the beneficiaries to use the death proceeds to pay inheritance taxes.

Survivorship universal life (SUL) and survivor variable universal life(SVUL) simply combine the features of survivorship life with universal life and variable life in one policy (consult our past posting). Because a survivorship life policy pays benefits only after both insureds die, it's usually a less expensive option than buying two seperate policies.

Tips on TIPS

The recent inflation rate is about 3.5% [To know latest numbers, visit U.S Department of labor] . The recent hikes in short term interest rates have made life tougher for borrowers and spenders but those sitting with cash did not get much of an advantage. The CDs and saving account yields (see our posting on best yields) are not yet good enough to win the race against inflation, if you consider the tax on these incomes.

Inflation-indexed securities (TIPS) seems to be the best way to beat both inflation and tax. It pays a fixed interest rate but its adjusts its principal to keep pace with the consumer price index. In recent times, 5-year TIPS have a yield about 2 percentage points above the inflation on a 5-year bond. Even though it's not much, it's safer and it is important if you are a reasonable guy who believes that diversification and not greed can make you a successful investor.

Caution: When TIPS increase in value due to inflation adjustment, Uncle Sam considers that to be a reportable income, even though money does not reach your hand before the bonds mature. So, TIPS would give you more profit if you hold it in your retirement account.

ARM's days are Over

With narrowing gap between long term fixed rate of mortgages and adjustable rate mortages (ARM), the refinancing activity is slowing down quite a bit. According to Freddie Mac, The interest-rate savings between 30-year fixed-rate mortgages and 1-year ARMs fell about 0.6 percentage point to around one percentage point since January, 2005. Currently, ARMs account for about 30% of new loans. Freddie Mac thinks the share will fall to around 25% by the end of 2006.

ARM rates were mixed in this first week of 2006. Five-year, Treasury-indexed hybrid rates averaged 5.78%, down from 5.79% and up from 5.03% a year ago. One-year Treasury-indexed ARMs averaged 5.16%, slightly up from last week's 5.15%. In first week of 2005, the one-year ARM averaged 4.1%.

The popular 30-year fixed-rate loan averaged 6.21%, down a little from 6.22% a week earlier. The rate averaged 5.77% at this time in 2005. The average for the 15-year fixed-rate mortgage this week was 5.76%. A year ago, the 15-year loan averaged 5.21%.

Annuities: Variable & Fixed

Today we return to the good old topic of everyone's interest: Retirement. Specifically we discuss the topic of tax deferred annuities. For those who are unaware, an annuity is defined as a sum of money payable yearly or at other regular intervals. There are two types of tax-deferred annuities: variable and fixed.

Variable annuities may be appropriate for self directed, growth-oriented investors who do not expect to retire for at least 10 years. Most variable annuities provide a guranteed death benefit up to certain age. They also allow you to invest your money in portfolios of securities that are similar to mutual funds. Your investment returns are based on the performance of the indivitual portfolios you choose, minus fees and expenses.

Variable annuities also provide a number of tax advantages. You can make tax-free exchanges within the annutity. You can also exchange within the annuity. You can also exchange one firm's annuity for another's with no tax consequences (a so-called 1035 exchange). You are not required to file any annual tax forms until you start withdrawing your assets, but taxable amounts withdrawn prior to age 59 1/2 may be subject to a 10% IRS penalty.

Investors with shorter time horizons (typically less than 10 years until retirement) who prefer a guarenteed rate of return may want to consider a deferred fixed annuity as a way to protect their savings from market volatility. Fixed annuity rates are based on the investment time period and are linked to current interest rates. Some investors use them to replace the Guaranteed Investment Contract (GIC) portion af an employer-sponsored saving plan when those assets are rolled over.

Energy Sector ETFs

We feel oil prices will continue to dominate the market and consumer sentiment throughout 2006. We feel we are not going to purchase gas at less than $2 a gallon anytime in 2006. For average consumers, the only way to offset the loss at gas stations seems to be investing in oil stocks and recycle the money back to your pocket.

In order to avoid risk and dependance on any particular stock, it's always better to go for some exchange traded fund (ETF). Energy sector ETFs have been top performers in 2005 but if gas price remains above $2, the oil companies will continue their profit in a big way. So, we should not consider a contrarion viewpoint here. Energy will continue to be a major headache for human civilization in years to come. It seems to be a good idea to be invested in this.

Here are some of the prominent energy-sector ETFs:
Energy Select SPDR (XLE) , iShares Dow Jones U.S. Energy (IYE), Oil Service HOLDRS (OIH), Vanguard Energy Vipers (VDE), PowerShares Dynamic Energy Exploration & Production (PXE) and Powershares ETF for alternative energy sector, PBW.