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   Lee Wenzel

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Planning

 

Long-Term Care (LTC)/Life Insurance Product Evaluation

The spreadsheet enables comparing "self-insuring", or investment returns if a LTC policy is not bought, to the costs and returns of a combination LTC/Life Insurance product.  The product is initially like term life-insurance until funds are diverted to LTC. 

There is also a worksheet giving forty years of monthly valuations resulting from specified initial balance and monthly contributions (similar to a mortgage table).  The chart illustrates compound returns.            

           LTC-Life Ins Comparison Calcs.xlsx

 

Long-Term Care (LTC) Evaluation Calculations

The spreadsheet enables comparing "self-insuring", or investment returns if a LTC policy is not bought, to up to five different scenarios varying on monthly cost of LTC, inflation rate on costs, years until LTC is needed and duration of the LTC.  You can specify variations in initial investment and monthly contribution.      

           LTC Self-Insure Projections.xlsx

 

Allocation Template

Some investors pick stocks they like based on a persuasive or logical set of factors.  I think of these as bottoms-up investors.  Others are top-down, or create an allocation structure with a few categories, then assign proportions to the categories, and only then fill the categories with individual selections.  The link provides an Excel template useful in allocating between categories, looking at both percentages and actual dollars, and evaluating each category according to income provided on a regular basis, expected gains from buying and selling securities, and assigning a volatility or risk discount to each category.  The shaded cells have formulas (which of course you can adapt). 

           Allocation Templates-Start with Percents or Dollars.xlsx

 

Getting There

How can you be comfortable in the face of investment uncertainties?  What framework does it take for you to know that you are doing what you can to have enough, and even beyond that, maximizing your resources for the benefit of people and causes important to you?

How Do You Make Investment Decisions?

There are eight radically different ways that we go about making investment decisions.  Which do you use?  Which do you want to use?

Allocation and Use of Pivot Tables

The complexity of investment diversification will be overwhelming, result in procrastination and be expensive if you don't have a good framework and tools for seeing high-level balance and then being able to drill down to the details.  To effectively make allocation decisions, you need to be able to see what you want to see, how you want to see it, when you want to see it, and not see a lot of other stuff that is confusing.  This paper provides models you can create on paper, as well as samples of how an Excel pivot table can be an indispensable aid.  Download the sample pivot table and explore.  To put your own data in a pivot table, you may download this example, edit a row in the Master worksheet maintaining the formulas, and then delete the remained illustrative rows.

Planning Spreadsheet (Monte Carlo)     

                Intro Page.pdf

                Planning2022-30yr.xlsm

                Sample Printout.pdf 

Many Boomers will not be able to continue their present lifestyle into a non-working retirement even with the most aggressive and successful investment program.  Many other families approaching retirement or already retired have assets far in excess of what is required to assure their current and chosen lifestyle.  For them these assets and the fruits of these assets will eventually go to heirs, charity or the government.  They need to be prudently managed for that purpose, rather than to miss returns that could greatly benefit chosen heirs or causes.  In between these extremes are people who need to plan and invest with exceptional care and attention so as to enable their future security.  Personally, I happen to be in this last group, as are many of my clients.

It is easy to read that historical equity returns average 9.8% and then make future projections based on that rate each year.  Doing so creates a very misleading picture, as historical returns vary considerably.  In fact, annual returns vary more than the normal statistical distribution assumed by many financial planning tools providing Monte Carlo simulations.  I developed a spreadsheet for inputting projected income and expenses in years going forward, along with other relevant data such as allocation between equities, Treasury Bills, bonds and real estate.  Multiple scenarios are then calculated using randomly selected years since 1928 (or a more recent year of your choosing).  A comparison is also shown for calculations using a fixed rate of return.  The two principal advantages to the spreadsheet are: 1). Returns are calculated based upon historical precedent, rather than assumptions about normal statistical distributions. 2). It is not a black box. 

Contact me if you would like to run the calculations on your situation.  Once we have done so, I can then send you your spreadsheet and you can continue to run simulations.

Planning Input Data.pdf  Planning Input Data.xlsx  Use one of these data entry worksheets to submit your initial data for doing your own Monte Carlo projections.  Use the pdf to print and write on paper if you are uncomfortable with the risks of downloading xlsx files.    

Drain the Traditional IRA Early?

       October 12, 2017  Drain the IRA.pdf

A common perception is that the longer funds remain untaxed, the greater the returns because of gains on untaxed money.  While counterintuitive, we show and illustrate that often for many investors it's better to pay the taxes now.

Investing for Non-Profit Donations

            December 2, 2010    Investing for Non-Profit Donations.pdf

By gifting appreciated assets to selected non-profits, one can often make sizeable gifts at no cost to the donor, or at a cost basis which is a small fraction of the gift's value.  If one can deduct the full value of a stock that has gone up three-fold, and one is at marginal tax brackets of 25% federal and 8% state, the original cost to the donor is entirely matched by the tax benefit.  However, the strategy for part of ones portfolio requires choosing highly volatile stocks, which will make many donors uncomfortable.  To gift stocks which happen to have appreciated is to miss most of the opportunities currently offered by the tax code.  For this to work, one has to deliberately have a portfolio dedicated to this purpose.  The article goes into details of how to select such portfolios, and what return distributions might look like.  Lists are given of prerequisites and cautions.       

 

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