Surgeon's Bulletin Board

May 25, 2007
Surgical Rounds®, October 2006, Volume 0, Issue 0

Profit When The Bubble Pops

America's Bubble Economy

America's Bubble Economy

Although the bursting of the Inter?-?net stock bubble during the "roaring 90s" left a bad taste in the mouths of investors everywhere, the authors of (John Wiley & Sons; 2006) assert that too many people are unaware of the looming and inevitable risks of today's economy. The authors examine the characteristics of economic bubbles and explain that America's current economy is one giant bubble comprised of many smaller ones, and these smaller bubbles are teetering towers of instability destined to come crashing down. The authors refer to the resulting giant financial shakeup as a "bubblequake." Besides describing the classic characteristics of finance?-?related bubbles, the book outlines important pitfalls to sidestep, such as the use of adjustable?-?rate debt, purchasing real estate other than for personal use, and dependency on fixed?-?payment pensions. helps investors understand bubbles and how to profit from them without getting crushed by their inevitable collapse. The authors don't promise pie?-?in?-?the?-?sky riches; they simply offer lucid, commonsense explanations of why our bubble economy is so unstable and how smart surgeon investors can profit from its inevitable pop.

Don'T Trust An Online Company Logo

BusinessWeek

One of the most recent Internet scams is known as "brand spam," in which scammers use a well?-?known company logo (eg, Home Depot, Starbucks) to lure na?ve Web surfers into forking over their personal information. According to , the scammers send out e?-?mails that propose such wonders as a $500 Home Depot gift card if you fill out a simple survey on their Web site, which is entirely bogus. When you enter your personal data to obtain that free gift card, you give the scammers everything they need to sell your information to other spammers. Many of these phony offers include user agreements that coerce you into signing up other people for the promo, which adds to the cycle of swindle. Many of the companies whose familiar logos are being used, such as Wal?-?Mart, warn consumers that they never offer Internet giveaways such as these. So, if you should ever receive an e?-?mail offer?-? ing you $100 in free Starbucks coffee, do yourself a favor and delete it immediately.

Discover The Best Place To Keep Your Cash

Wall Street Journal

Journal

Journal

Top Wall Street strategists are advising surgeon investors more strongly than ever to keep a quarter of their money in cash, but deciding where to store that hard?-?earned cash may be confusing. According to the , there are quite a few options a cash?-?conscious surgeon should consider. The classic savings account now resides primarily online through sites such as INGdirect.com, HSBCdirect.com, and Emigrant.com. When choosing this option, the suggests transferring money back and forth between your checking and savings accounts, maximizing the money earned but keeping just enough money in your checking account to cover bills. Another cash option is to place your funds in one of the various money market accounts (MMAs). These include bank MMAs, which offer privileges much like checking accounts but with higher annual percentage yields (APYs), and the number of transactions you can make per month is limited. The other MMA option includes mutual funds, which can offer either taxable or tax?-?free yields. These funds make the most sense if you want to store your stock proceeds before moving the money to another stock. The indicates that CDs offer the best yield, because you can earn an APY of up to 5%; however, since you are required to leave your cash in a CD for at least 6 months or face stiff penalties, this option demands patience. When shopping for the best rates, don't forget to check out some of the smallest banks, such as Millennium Bank and State Bank of India. Small banks sometimes offer the highest rates of return.

Know Your Bankruptcy Risk Score

When it comes to financing major purchases such as a house or car, most surgeons are concerned only with their credit score, but there is a secondary score that consumers should be aware of, because it can influence what they can buy: the bankruptcy risk score. According to Bankrate.com, financial institutions use bankruptcy risk scores when they want to dig deeper into a consumer's credit history. This score is more specific than a credit score because it gauges how likely someone is to file for bankruptcy; however, unlike credit scores, this score is not available to the public. The reasoning for this is cloudy, but experts think that the firms that spent a great deal of time and money researching the scoring model want to protect the value of their research. Despite this, Experian is considering making bankruptcy risk scores available to consumers so they can get a better idea of their debt. You can improve your bankruptcy risk score in much the same way as your credit score by paying your bills on time, keeping debt low, and opening accounts only when needed.

Protect Yourself From Mishaps With Accidental Death Insurance

Many cautious?-?minded people out there would love to have insurance before they embark on a potentially unsafe situation, such as a commercial flight. The good news, according to Bankrate.com, is that you most likely already have such an insurance policy in your wallet. Accidental death and dismemberment (AD&D) insurance is offered in some form with each of the four major credit card brands: Visa, MasterCard, American Express, and Discover. The AD&D coverage differs depending on which credit card brand you use, providing anywhere from $100,000 to $1 million in insurance coverage. As long as you purchase your ticket with a credit card that has AD&D insurance locked in, you are covered. This applies to any type of travel deemed a "common carrier conveyance," which includes commercial flights, trains, buses, or boats. In a worst?-?case scenario, it is a nice little piece of insurance that you probably didn't even know you had. Check with your credit card issuer to see if your card includes an AD&D policy.

Mortgage Lenders Still Making High?-?Risk Loans

BusinessWeek

According to , when the housing market quieted down and interest rates went up, many experts predicted that there would be a slew of mortgage foreclosures and bank losses, but this has not happened yet. However, delinquency rates have begun to creep up, jumping to 4.7% in the fourth quarter of 2005. Despite the housing market slowdown, many lenders are still forging ahead with the aggressive loans they relied on during the housing boom. Although this is good news for a surgeon with subpar credit who is trying to get a loan approved, the Federal Reserve is angry that lenders are persuading prospective borrowers to accrue even more debt by offering loan terms such as low minimum payments and little or no documentation required. The bad news is that repayment terms on $1.3 trillion of adjustable?-?rate loans will go up this year and the next, meaning some borrowers will have to pay up to 150% more than their current monthly payment. This could lead to many borrowers defaulting on their loans, which would cause serious financial troubles for aggressive lenders.

Banks Reel In New Customers With A Variety Of Tricks

BusinessWeek

BusinessWeek

The days of offering customers free toasters for opening a new bank account are over. Banks now attract new customers in more creative ways. According to , many banks have given themselves extreme makeovers, going from a cold institution to something more akin to a coffee shop, complete with digital music kiosks and cybercaf?s. They have hired behaviorists to profile customers and technology consultants to incorporate cutting?-?edge gadgetry and systems in their branches. Banking corporations are using new technology to monitor transactions, such as credit card purchases, online inquiries, and call?-?center complaints, so they can form a picture of what the individual customer wants. In a example, if a couple uses a credit card to purchase flowers, an expensive cake, and a vacation in a short span of time, they are likely newlyweds and may soon need a mortgage; if someone shops at Home Depot several times a month, the bank may offer them a home equity product. Banks are taking their cue from retailers, who have long used consumer data and profiles to determine what customers want, what they'll do, and when they'll do it.

Money Talk In The Classroom

Lord of the Flies

Wall Street Journal

Wall Street Journal

Your children may soon be taught about the stock market and investing in between lectures on the Pythagorean theorem and , and major corporations are eager to become their teachers. Personal finance courses have already been incorporated into some public school curriculums, offering students the opportunity to learn about the dangers and perks of money management. According to the , in March 2006 Texas started screening personal finance programs developed by companies such as Wells Fargo & Co, Citigroup Inc, and Visa USA Inc. Schools in South Carolina, Missouri, and Virginia will soon follow suit. In South Dakota, personal finance classes are set to become a graduation requirement, and students will be offered courses on using credit cards, analyzing health insurance, and calculating taxes. People younger than 25 years of age constitute one of the fastest growing groups of bankruptcy filers, and individuals between the ages of 18 and 24 have seen their credit card debt increase more than 100% in the past decade, according to recent research published in the . Although many may suspect the educational material developed by banks, financial advisors, and credit card issuers of exerting commercial influence, most companies are sensitive to the issue and maintain that they are not leaving brochures behind. These companies also do not link their corporate Web sites to tutorial programs.

Invest Locally With Municipal Bonds

Wall Street Journal

Journal

With all the talk of overseas investing in countries such as China and India, many surgeon investors are overlooking financial opportunities in their own backyard. Municipal bonds (ie, bonds issued by state and local governments to help fund state spending) are a solid way to increase the returns provided by your fixed?-?income investments, particularly at a time when the gap in the yield between short?-? and long?-?term Treasury bonds is negligible. According to the , municipal bonds (munis) are exempt from federal, state, and local taxes if you purchase them in your home state. Because of this, munis compare favorably with Treasury bonds. Munis are especially attractive to investors in high tax brackets, a category that includes most surgeons, due to their tax?-?exempt status. Munis have attracted little interest from foreign investors, which means they offer a degree of protection in the event of a bond?-?market selloff. The advises you to keep munis out of your retirement accounts, such as your 401(k) and IRA plans, because the tax advantages of munis will be nullified when you withdraw funds. Instead, hold munis in a taxable account, such as a brokerage account.

Help Your Portfolio And The World

Time

If you're like many surgeons, you initially entered medicine as a way to contribute something positive to the world. Wouldn't it be nice if your financial portfolio could reflect that ideal while still bringing in competitive returns? It can, says a magazine article on socially responsible investments (SRIs). SRIs that invest in large-cap companies brought in an average return of 11.99% over the past 5 years, a mere 0.61% difference from their regular counterparts (at 12.60%). Investors have taken notice of this, and SRIs grew a staggering 321% between 2000 (at $9.5 billion) and 2005 ($40 billion) according to Morningstar. In that same period, the number of funds available expanded from 78 to 222. Some of Morningstar's top 1-year performers included Amana Growth, Winslow Green Growth, Alger Socially Responsible Growth Institutional (Share Class I), Amana Income, and Amana Socially Responsible Growth Institutional (Share Class R). Since there are no standards for what constitutes an SRI, be sure to read your prospectus carefully.

Use Annuities To Enhance Retirement Income

InvestmentNews

There likely isn't a surgeon out there who is completely comfortable with his or her finances heading into retirement. An article finds a good solution to retirement income in annuities. Firms currently offer variable annuities that are evolving in inventive ways to meet the needs of the retiring baby boom generation. In the past, annuities offered living benefits in one of three categories:

Guaranteed minimum-income benefit?This guarantees that you won't receive less than a minimum level of annual income for life, despite the annuity's performance.

Guaranteed minimum-accumulation benefit?This one guarantees that you will receive the greater of the contract value no matter how the annuity performs or the return of your initial investment, provided the contract is held for a specified amount of time.

Guaranteed minimum-withdrawal benefit?This benefit guarantees the return of your principal through a series of withdrawals that are subject to an annual limit, usually 5% to 7% of the guaranteed amount of the contract.

Recently, hybrid annuities have been introduced that merge the principal protection of the accumulation benefit with the earning power of the income and withdrawal benefits. These plans provide more flexibility than past annuities and let you choose how to take your money during the distribution phase and make immediate withdrawals.

Northeast Attractions Come At A Price

The changing colors of leaves in the fall, the white coating of trees in the winter, the budding flora in the spring, and the sizzling sand of beaches in the summer come at a steep price in the Northeast. According to CNNMoney. com, this year the Tax Foundation found that five of the ten least tax-friendly places to live are Maine, New York, Rhode Island, Connecticut, and Vermont. The Foundation determines its rankings by calculating what residents pay as a percentage of per capita income in property, sales, income, and other personal taxes imposed at the state and local levels. Results also include the portion of business taxes passed on to state residents through higher prices, lower wages, or lower profits. If you're a surgeon looking to retire in a tax-friendly state, Alaska, New Hampshire, Delaware, Tennessee, and Alabama made up the top five?beating out the most notable retirement haven, Florida. ?

Save At The Pump

Wall Street Journal

The cost of gas today can be aggravating and financially taxing. Although driving fewer miles or trading in your SUV will help keep costs down, these are impractical solutions, especially for busy surgeons who are constantly on- call. A recent article in the ?offers the following tips for those whose pain at the pump cannot be alleviated easily:

Invest in energy stocks (eg, Devon Energy, Whiting Petroleum, El Paso, or Energy Partners). Sometimes gains will more than make up for the extra fuel costs.

Compare local pump prices on Web sites such as gasbuddy.com or gaspricewatch.com. A difference of a few cents can go a long way, but only if you do not have to go out of your way to get to the cheaper gas station.

Apply for a credit card that refunds 5% of all gas purchases (eg, Chase, CitiCards, American Express, or Discover). If a card caps your annual refund, hit the limit, retire the card, and start over with a competitor's card.

The Long And Short Of Making Money With Funds

Surgeon investors looking to preserve capital may want to consider the split-personality world of long-short funds. According to the Wall Street Journal, long-short funds make money by betting that some stocks will increase in price while others will decrease. The "long" half refers to investments in securities, while "short" refers to short selling, where a borrowed stock is sold in hopes of buying it later at a lower price to return to the lender. This bizarre approach to investing is actually more conservative than it appears. Long-short funds could help your portfolio remain diversified and possibly rise in value during expansive market declines. Currently, long-short funds are only offered by a few firms; more widely known fund companies such as American Century Investments and Janus Capital Group have announced plans to introduce their own long-short funds soon. Long-short funds do have shortcomings, including complicated strategies and higher fees than regular stock funds.

Land Tax Benefits With Conservation Easements

If you're a surgeon with a lot of land and are looking for a powerful estate and tax planning tool, you may want to consider a conservation easement. According to the Journal of Financial Planning, under a conservation easement a landowner puts certain restrictions on the development of his or her land by giving veto power over the land to a land trust or government entity, and all subsequent owners of the property are bound by the agreement. The property must meet a set of standards to qualify for protection. While protecting their property, landowners are eligible for a range of federal, state, property, and estate tax reductions. Qualifying for an easement can be complicated, because the easement requires a thorough qualified appraisal. But if you want to preserve your land for conservation or keep it in your family, an easement provides a tremendous opportunity. Contact your financial advisor to go over the fine details of protection, appraisal, and tax benefits.

Financial Firms Not Investing In Their Web Sites

Surgeon investors searching for high-quality financial services Web sites may be hard pressed to find them. According to InvestmentNews, the most recent "Internet Standards Assessment Report" revealed that financial services Web sites are not up to snuff. The judges for the report assessed a score based on design, innovation, content, technology, interactivity, copywriting, and ease of use. Each factor was worth a possible 10 points. The financial services sites averaged a score of 47.4 for 2005, below the average score of 52.2 for the 81 industries involved in the study. The financial sites averaged 6.6 out of 10 for each category, giving them 68th place. These results are disappointing for many, because the financial services industry has long been at the forefront of online access. Despite the low scores, the Web Marketing Association, which released the study, named the Merrill Lynch Gateway Web site (www.ml.com) as the best financial services site, and BusinessWeek Online?(www.businessweek.com) as the best investment site. ?

Did You Know...

13%?-?Percentage of baby boomers who begin a second career as a retail sales clerk. (Merrill Lynch, 2006)

BusinessWeek

64%?-?Average increase since 2001 in the amount major banks have at risk during a typical trading day. (, 2006)

BusinessWeek

47%?-?Percentage of major invest?-?ment banks' revenue that comes from trading. (, 2006)

Time

$50 million?-?Estimated value of trips funded by private groups for members of Congress and their aides from 2000 to 2005. (, 2006)

New York Times

28%?-?Percentage of cell phones now in use that have video capability. (, 2006)

New York Times

1%?-?Percentage of cell phone users who watch videos on their phones. (, 2006)

14%?-?Percentage of teens who met face?-?to?-?face with someone they had known only through the Internet. (National Center for Missing & Exploited Children, 2006)

Time

$17,316?-?Total value of personal gifts given to President Bush in 2005. (, 2006)

Time

$39,722?-?Total value of personal gifts given to Vice President Cheney in 2005. (, 2006)

US News & World Report

2,500?-?Number of American students who drop out of high school every day. (, 2006)

7.6%?-?Percentage the National Association of Realtors predicts existing home sales will decline this year. (Reuters, 2006)