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Ponderings For the Week of September 16 to 22, 2019

Shifting Sentiment in the Stock Market

Investors were in a buying mood last week, but preferences shifted from growth stocks to the beleaguered and boring value stocks. Virtually all stock sectors, large company and small company, gained last week. International shares also did well. The primary catalyst here was optimism over a trade deal next month between the U.S. and China. Overseas, the European Central Bank (ECB) announced new stimulus measures to help the slowing Eurozone economies.

Interest rates on bonds also increased last week with Treasury yields achieving six-week highs. Apropos interest rates, this Wednesday the Federal Reserve announces its monetary-policy decision. Those who follow these matters for a living expect the Fed to cut its federal-funds rate by a quarter of a percentage point.  


Estate Planning Update - Advance Directives

Owing to advances in medical technology, people's lives can be sustained even when they are terminally ill and have no hope of leading an active, independent life. An advance directive is a document in which you give instructions about your health care and what you want done and not done if you can’t speak for yourself. Advance directives are not complicated, typically consisting of short, simple statements expressing your values and choices. “Advance directive” is a term that includes health care directives, living wills, health care (medical) powers of attorney, and other personalized directives.

  • Health care directive. A health care directive is a type of advance directive that tells you doctor and your family members what kind of care you would like to have if you become unable to make medical decisions. Unlike most living wills (described next), a health care directive is not limited to cases of terminal illness. If you cannot make or communicate decisions because of illness, a health care directive helps you keep control over health care decisions that are important to you.
  • Living will. A living will is a form of advance directive that usually only comes into effect if you are terminally ill, which generally means you have less than six months to live.  
  • Health care (medical) power of attorney. A health care (medical) power of attorney lets you name someone (an “agent”) to make medical decisions for you if you are unconscious or unable to make medical decisions for yourself for any reason. It may be incorporated within a health care directive or living will or it may be a separate document. Appointing an agent is particularly important. At the time a decision needs to be made, your agent can participate in discussions and weigh the pros and cons of treatment decisions based on your wishes. Your agent can decide for you whenever you cannot decide for yourself, even if your decision-making is only temporarily affected.  

An advance directive, including a health care (medical) power of attorney, has no legal effect unless and until you lack the capacity to make health care decisions or to give consent for care. By expressing your wishes in advance, you help family or friends who might otherwise struggle to decide on their own what you would want done, a point that was amply illustrated by some well-publicized cases where end-of-life decisions could not be made, to the detriment of the patient. Finally, advance directives aren’t just something for old folks. The stakes are actually higher for younger people in that, if tragedy strikes, they might be kept alive for decades in a condition they would not want.

Everyone should consider preparing an advance directive; it can provide comfort to family members at a difficult time. Also (forgive me, but this is a financial newsletter), an advance directive can save a lot of money. The cost of keeping someone alive by artificial means can drain a family's estate.

Finally, each state has adopted its own nomenclature for these important directives so it behooves you to work with an attorney who is familiar with the regulations in your state.


Smart Money Tips

  • Millennials’ predilection for car leasing bodes ill for their financial wellbeing. Millennials (those age 22 to 38 in 2019) are showing a much greater preference for car leasing than those who are older. One explanation is that millennials have grown up with all sorts of electronic gadgets that are replaced every couple of years, and many are taking the same approach to car ownership. As you may have surmised by past observations on our metal and plastic masters, your scribe hates cars and feels that car leasing is almost always a lousy way to own a car since you consign yourself to permanent car payments. I’ve run the numbers in the past and those who lease cars end up with a whale of a lot less money when they retire compared with those who buy cars and hold onto them for at least several years. So I have a question for millennials and others who are leasing their cars: Have you properly evaluated the pros and cons (mostly cons) of car leasing? Please forward this to any family members who might benefit from this discussion. 
  • Safe money may not be so safe. Several days of declines in stock prices cause skittish investors to think about moving their money out of stocks. While that may be a source of some comfort, there are two problems with this “strategy.” The first is deciding when to get back in. This is a very tough decision and it is why investors who try to time the market fare so poorly. I’ll never forget one hapless chap who called me on a talk show to ask if he should get back into the market. I say hapless because it turns out the stock market had more than tripled in value since he got out. Second, there are two risks in investing. The one that’s so scary is the visible risk of losing money in a declining market. But the other one can be just as deleterious – the invisible risk of losing ground to inflation, which may happen if you consign your money to supposedly no-risk money market funds and similar cash equivalent investments. As I’ve long said, the biggest risk in investing is taking no risk at all. What I find particularly bemusing about those who want to head for the hills at the first sign of market weakness is that they never suggest reducing stock exposure somewhat after stocks have risen smartly. Instead, their inclination is to buy more stocks. In other words they want to buy high and sell low, exactly the opposite of the approach taken by successful investors.



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