THE ULTIMATE SAFE MONEY GUIDE How Everyone 50 and Over Can Protect, Save, and Grow Their Money MARTIN D WEISS, Ph.D WEISS RATINGS, INC John Wiley & Sons, Inc 8905_Weiss_fm_f.qxd 12/20/01 1:48 PM Page ii 8905_Weiss_fm_f.qxd 12/20/01 1:48 PM Page i THE ULTIMATE SAFE MONEY GUIDE 8905_Weiss_fm_f.qxd 12/20/01 1:48 PM Page ii 8905_Weiss_fm_f.qxd 12/20/01 1:48 PM Page iii THE ULTIMATE SAFE MONEY GUIDE How Everyone 50 and Over Can Protect, Save, and Grow Their Money MARTIN D WEISS, Ph.D WEISS RATINGS, INC John Wiley & Sons, Inc fcopyebk.qxd 3/5/02 11:45 AM Page iv For my son, Anthony Copyright © 2002 by Martin D Weiss, Ph.D All rights reserved Published by John Wiley & Sons, Inc No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4744 Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 10158-0012, (212) 850-6011, fax (212) 850-6008, E-Mail: PERMREQ @ WILEY.COM This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is sold with the understanding that the publisher is not engaged in rendering professional services If professional advice or other expert assistance is required, the services of a competent professional person should be sought This title is also available in print as ISBN 0-471-15202-1 Some content that appears in the print version of this book may not be available in this electronic edition For more information about Wiley products, visit our web site at www.Wiley.com CONTENTS Introduction vii The Great Stock Market Scam xiv Five Lessons from the Great Stock Market Scam 22 Broken by Your Broker? Here’s How to Get Money Back 36 Safety and Yield Are Your Best Escape 46 Profits Are Your Best Revenge 76 Investing in Individual Stocks? 94 Protect Your Wealth! 108 The Great Insurance Cover-Up 132 What You Need to Know about Life Insurance 152 10 Annuities—The Pros and Cons 174 11 The Case against Tax-Exempt Bonds 192 12 Health Insurance Decision for Seniors: HMO or Medigap? 210 v vi Contents 13 What about Your Long-Term Care? Do You Need Insurance? What Kind? When? How Much? 224 14 “Help! This Is the First Time I’ve Had to Make My Own Investment Decisions! What Do I Do?” 250 Appendix A Risk Self-Test 270 Appendix B How to Avoid a Broker That Will Break You, and Find One That Can Truly Help You 281 Appendix C Investment Watchdog Agencies 288 Appendix D Other Resources for Investors 300 Appendix E Medicare, Medigap, and Long-Term Care: Piecing the Puzzle Together 302 Long-Term-Care Planner 306 Appendix G Helpful Organizations, Publications, and Programs 313 Endnotes 317 Index 327 Appendix F INTRODUCTION On September 11, 2001, a handful of fanatic terrorists broke America’s heart; and even as we grieved for our fallen countrymen and women, the second devastating impact of that contemptible deed was about to be felt—on our economy If our stock markets had been stronger, the economy might have held up well under the new strain But that was not the case On the day before the attacks, the stocks of America’s technology companies had already been slammed 66 percent, wiping out $5 trillion in wealth, nearly half of the value of all the products and services our nation produces in an entire year By September 2001, millions of investors were already reeling from stock market losses, their life savings destroyed, their retirement plans smashed Or, if our corporations had been making good money, our economy might have been okay, too But that was not the case either On the day before the attacks, the 4,000-plus companies listed on the Nasdaq exchange had already suffered from a flood of red ink so large, every single penny of their profits made since the summer of 1994 had been washed away One technology leader, JDS Uniphase, had just reported the largest single loss of all time— $56 billion The nation’s airlines were losing close to $2.5 billion for the year In almost every American industry, profits were plunging At least, if average American families had been saving for a rainy day, they could have gotten by without too much financial vii viii Introduction trauma But as fate would have it, most American families had stopped saving months before the attacks Instead of putting away five, six, or seven cents out of every dollar they made, like they used to in earlier years, they saved nothing—not one penny The U.S savings rate had fallen to zero, even less than zero Compounding the problem, millions of families were drowning in credit card debts What’s most shocking is that many of America’s richest corporations were in the same boat To survive a couple of bad years, I figure the average American company should have about one dollar in cash on hand to cover every dollar of bills or debts coming due within the next 12 months But in the days before the attacks, many companies were already very low in cash: Delta Airlines had only 38 cents in cash per dollar of debts coming due in a year Northwest Airlines had only 36 cents; Vanguard Airlines, only 19 No wonder the airlines needed an immediate, massive federal bailout just days after September 11! Despite all this, if we could only be confident that the attacks of September 2001 were a one-time event, it might not be so serious But as we have seen, that has not been the case either The entire world had entered a new, riskier era The global economy was already in—or soon to enter—a global recession Now, a worldwide depression was no longer unthinkable All this raises serious questions for anyone 50 or over Will the American economy and stock market fall to even lower levels? Which insurance companies and banks are most likely to fail? Which ones are safe? How can you protect your nest egg? What changes must you make to your retirement plans? If you’ve already suffered losses, how can you recoup? What steps must you take immediately to safeguard your investment portfolio, your home, your insurance policies? Where can you invest your money safely? My family began answering questions like these a long time ago—in 1929, just before the Great Stock Market Crash That’s when my father, J Irving Weiss, looked at his research, peeked over the horizon, and saw serious trouble ahead He was probably the only stockbroker on Wall Street that warned his clients ahead of time to get out of stocks and take their money out of the banks, too He borrowed $500 from his mother and used it to sell the market short 8905_Weiss_nts_f.qxd 12/20/01 1:50 PM Page 324 324 Endnotes testimony before the U.S Senate Committee on Banking, Housing, and Urban Affairs (February 18, 1992); “The Crisis of Confidence in the Insurance Industry,” testimony before the U.S Senate Committee on Commerce, Science, and Transportation (May 7, 1991) Eric Berg, “The Bad Boy of Insurance Ratings,” New York Times ( January 5, 1991), Business section, p Joseph M Belth, “The Disclosure Approach to the Problem of Deceptive Practices in the Life Insurance Industry,” The Insurance Forum (August 1994), vol 21, no 8, pp 81–82 See also “Deceptive Practices and the Establishment of IMSA,” The Insurance Forum (August 1999), vol 26, no 8, p 241 For copies ($5 each), write to Insurance Forum, Inc., Box 245, Ellettsville, IN 47429, or visit them on the Web at www.insuranceforum.com Major settlements were as follows: Prudential Insurance Co of America (Newark, New Jersey)—$2.7 billion, with at least million policyholders involved, settled 1996; John Hancock Financial Services, Inc (Boston, Massachusetts)—$713 million settlement, involving million policyholders, settled 1997; Metropolitan Life Insurance Co (New York, New York)—$1.7 billion, involving million policyholders, settled 1999 James H Hunt, “How to Save Money on Life Insurance,” Consumer Federation of America, Washington, D.C For more information, go to www consumerfed.org, call 202-387-6121, or write to Consumer Federation of America, 1424 16th Street, NW, Suite 604, Washington, DC 20036 One of the tacks the insurance industry developed to combat all of their bad press was to create new credentials As of this writing, most insurance designations are awarded by The American College, an educational institution in Pennsylvania that offers college-level courses on life insurance and related matters The college awards a handful of designations to financial services professionals, the most popular of which are the Chartered Life Underwriter (CLU), the Chartered Financial Consultant (ChFC), and the Certified Financial Planner (CFP) It also awards the Registered Health Underwriter (RHU) and the Registered Employee Benefit Consultant (REBC) At college, financial services professionals learn all about the products that they will be selling and even get sales training And that sales training is sure to be enhanced when the merger between The American College and LUTC, Inc., is complete What is LUTC, you ask? It’s a company known for its life insurance sales training expertise At LUTC, your insurance “advisor” can take classes like Employee Benefits The catalog description says: target marketing [is an] important element of this course, as are effective activities to stimulate activity within this market The course features invaluable material on an effective preapproach, the approach, and closing techniques In other words, financial services professionals are furthering their education at an institution that was created to train salespeople to improve their strategies 8905_Weiss_nts_f.qxd 12/20/01 1:50 PM Page 325 Endnotes and increase their close ratio They learn how to target (find) you, approach you, get in your door (or head), and not give up until they have sold you their product Chapter 11 For example, in the January 1990 issue of Best’s Review, Harold Skipper, Professor of Risk Management and Insurance at Georgia State University, pointed out: with increasing competition from all quarters, insurers are seeking ways to operate on thinner margins, to enhance investment performance through the purchase of riskier investments In the same issue, Earl Pomeroy, President of the National Association of Insurance Commissioners (NAIC), wrote: State insurance regulators are observing ominous signs of emerging solvency problems in what traditionally has been the most secure line of all— life insurance Similarly, in the March 1990 issue of Best’s Review, David F Wood, past president of the National Association of Life Underwriters, under the title “The Insolvency Chill,” stated: It is widely acknowledged that life insurers’ profit margins have declined significantly, primarily because of rapidly increasing costs, slower growth, declining interest rates in the face of long-term higher rate guarantees and stiffer competition All these factors have severely eroded the capital base of many companies .” Data: Thompson Financial Yes, there were special weaknesses back then that not exist today, such as speculative municipal bonds in Florida, based mostly on the high-risk land boom But there are also many special weaknesses today which did not exist in the 1930s, as described later in this chapter Lynn Hume, “Disclosure: TBMA Forms Taskforce to Review Practices,” The Bond Buyer (May 16, 2001) “Milestones in Municipal Disclosure,” The Bond Buyer (November 10, 1998) Vicki Stamas, “Buchanan Sentenced to Serve Three Years and Pay $500,000 for Fraudulent Deals,” The Bond Buyer (April 2, 1992) Karen Damato, “Stock-Like Risk Is ‘Ugly Secret’ in Usually Safe Muni Market,” Wall Street Journal (March 28, 2001) 325 8905_Weiss_nts_f.qxd 12/20/01 1:50 PM Page 326 326 Endnotes Federal Reserve Consolidated Statement for Federal, State, and Local Governments S&P’s J J Kenny at www.jjkenny.com/jjkenny/freepage.html Chapter 12 Weiss Ratings, Inc., “Medicare HMO Fiasco: Few Options Available for the Nearly One Million Seniors to Be Dropped from HMOs by Year-End,” (November 8, 2000) See also Weiss Ratings, Inc., “Advice for the 300,000 Medicare Beneficiaries Being Dropped from Their HMOs on January 1,” (November 8, 1999) For free copies, write to Press Releases, Weiss Ratings, Inc., 4176 Burns Road, Palm Beach Gardens, FL 33410, or go to www.weissratings com/News/Ins_Medigap/20001108medigap.htm and www.weissratings.com/News/ Ins_HMO/19991108hmo.htm Weiss Ratings, Inc., “Medigap Prices Vary Dramatically Despite Standard Plans,” ( June 11, 2001) For a free copy, write to Press Releases, Weiss Ratings, Inc., 4176 Burns Road, Palm Beach Gardens, FL 33410, or go to www.weissratings com/News/Ins_Medigap/20010611medigap.htm Chapter 13 Senator Charles Grassly (Iowa), Chairman of Special Committee on Aging In addition, a 1999 GAO study shows that more than one-quarter of nursing homes had deficiencies that “caused actual harm to residents or placed them at risk of death or serious injury.” If you have difficulty reaching this Web site, try www.cms.hhs.gov The Health Care Financing Administration (HCFA) has recently changed its name to the Center for Medicare and Medicaid Services (CMS) Weiss Ratings, Inc., “Long-Term Care Policies Vary Drastically in Cost to Consumers,” (April 5, 2000) For a free copy, write to Press Releases, Weiss Ratings, Inc., 4176 Burns Road, Palm Beach Gardens, FL 33410, or go to www weissratings.com/News/Ins_LTC/20000405ltc.htm 8905_Weiss_idx_f.qxd 12/20/01 1:49 PM Page 327 INDEX Account churning, 159 Activities of daily living (ADLs), 246 Adult day care, 228, 239 Advanced Micro Devices, 11 Airline industry: effects of 9/11 on, viii performance in 2001, vii Allied Signal, merger with Honeywell, Allstate, 155 Alpha, 90–91 Amazon.com, A M Best & Co., x, 142, 149 insurance rating procedures of, 138–139, 143, 195 American Council of Life Insurance (ACLI), 157 American Family Mutual Insurance Company, 220 American General Life, 159 Ameritas Life, 172 Annual renewable term life insurance, 166 Annuities, 176–191 advantages of, 184–185 bailout rates for, 182 choosing, 190 deferred, 178–179, 180 determining need for, 180–183 fixed, 180–181 front-end load on, 182, 190 immediate, 178, 185–186 as investments, 179 joint and survivor, 184 versus life insurance, 178 operation of, 180–182, 185 policy illustrations on, 190–191 rip-offs on, 189–191 surrender charges for, 181, 182, 189–190 taxes on, 184 teaser rates on, 190 versus Treasury bonds, 186–187 variable, 179–180, 189 withdrawals from, 181, 182–183 Annuitization, 182–185 327 8905_Weiss_idx_f.qxd 12/20/01 1:49 PM Page 328 328 Index Arbitration, 34, 38–45 documents needed in, 42 fees for, 43 involving a lawyer in, 40–41 length of, 43–45 recouping money in, 39–40 steps in, 40–45 Assisted living, 228, 239 See also Long-term care Attained-age pricing, 220–221 Bailout rates, 182 Ball, Ed, 208 Bank of America, 52 Bank of New England, 33 Bankruptcy, risk of, 25 Banks: as custodians of Treasury-only savings and checking, 60, 67 FDIC coverage of funds in, 63 fees charged by, 50, 61, 65 interest paid by, 50–51, 56 investment practices of, 52 loan practices of, 51–52 safety of funds in, 50–56 strongest/weakest, 53–55 Barrett, Craig, Belth, Joseph M., 158–159 Benefits: collecting, on life insurance, 261 daily, 245 period of, 245 restoration of, for long-term care insurance, 248–249 from Social Security, for surviving spouse, 262 triggers for, 246 Blodgett, Henry, 38 Bond Market Association, 202 Bonds See also Junk bonds; Municipal bonds; U.S Treasury securities corporate, 259–260 effect of Great Depression on, 203 effect of interest rates on, 136–137, 259 mutual funds including, 82 operation of, 137 ratings of, 137, 140 tax-exempt (See Municipal bonds) Boston, real estate market in, 111, 112 Brokers: abuses by, 16–20, 25 advisors versus salespeople, 27–29 best/worst, 101–102, 105 big versus small firms, 33 buying stocks through, 285–286 choosing, 100–103, 281–287 commissions charged by, 103–104 conflicts of interest of, 20, 33 databases on, 282–284 failure of, 25–26 fees charged by, 81–82, 92 monitoring performance of, 286 recouping money from, 17, 34, 38–45 suing, 39 Buffett, Warren, 11 California, long-term care Partnership Programs in, 234, 315 Call options, Capitol Life, 144 Carr, Fred, 139–140 Case, Stephen, 8905_Weiss_idx_f.qxd 12/20/01 1:49 PM Page 329 Index Cash flow: of corporations in 2001, viii, using to determine earnings manipulation, 96–98 Cendant Corp., 11 Central Registration Depository (CRD), broker database of, 282–283 Certificates of deposit (CDs): liquidity of, 56 taxes on, 64–65 Certified financial planners (CFPs), 171 Certified public accountants (CPAs), as financial advisors, 106 Charles Schwab, 86 Chase Manhattan, 52 Chicago Board of Options Exchange (CBOE), online services of, 119, 301 Christian Fidelity Life Insurance Company, 221 Cisco Systems, merger with Cerent, Citibank, 52 Commissions, 103–104 Connecticut, long-term care Partnership Programs in, 234, 316 Conseco Direct Life, 14, 144 Consumer Guide to Long-Term-Care Insurance, 241 Consumer Guide to Medicare Supplement Insurance, 223 Continental General Insurance Company, 221 Corporate bonds, 259–260 Corporations: bias in ratings of, xi, 13–16 cash flow in 2001, viii, earnings manipulation by, 4–12 failure of, 25 performance in 2001, vii Crash of 1929: effects on economy, viii length of recovery from, 30 Crash of 1973, length of recovery from, 30 Crash of 2000–2001: amount of wealth destroyed by, 20 effect on mutual funds, 32 effect on real estate market, 111 effect on technology stocks, vii, 26, 30 Crédit Lyonnais, 52 Crescent Airways, 18 Daily, Glenn S., 171, 190 Daily benefit, 245 Deferred annuities, 178–179, 180 Delta Airlines, viii Derivatives, 52 Deutsche Bank, 52 Divorce: investment strategies for, 260–269 pension/retirement account issues in, 268–269 real estate issues in, 266–267 tax issues in, 266–269 Donoghue, Bill, 86 Dow Jones Industrial Average, 31, 116 Duff & Phelps, insurance rating procedures of, 138–139 Earnings manipulation, 4–12 detecting, 96–98 methods of, 6–12, 96 motives for, risks of, 25 329 8905_Weiss_idx_f.qxd 12/20/01 1:49 PM Page 330 330 Index Economy: effects of 1929 crash on, viii effects of 9/11 on, vii performance in 2001, vii Eisner, Michael, Elimination period, 244–245 Equitable Life & Casualty Insurance Company, 239, 242–243 Equitable Life Assurance Society, 155 Estate taxes, 163 Every Woman’s Guide to Financial Security, 269 Executive Life, 33 of California, 138, 141, 189 of New York, 138, 141 ratings deal by, 139–140 Executives, compensation practices of, 5–6 Expiration of options, 123, 131 Federal Deposit Insurance Corporation (FDIC), coverage limits of, 54–56, 63 Federal Trade Commission (FTC), insurance division of, 217 Fee-only financial planners, 106–107 Fees: for arbitration, 43 charged by banks, 50, 61, 65 charged by brokers, 81–82, 92 for ratings, xi, 200 for Treasury-only savings and checking, 61–62 Fidelity & Guaranty Life, 144 Fidelity Bankers Life, 138, 141 Fidelity Funds Network, 86 Financial advisors, 27–28 choosing, 105–107 for newly single seniors, 262–263, 265 The Financially Confident Woman, 269 Financial newsletters, 107 Financial planners: certified (CFPs), 171 fee-only, 106–107 insurance agents as, 170 First Capital Life, x, 138, 141 Fixed annuities, 180–181 Float, 60, 62 401(k) accounts See Retirement accounts Front-end load, 182, 190 General Electric Capital Assurance Company, 242 Goldman Sachs, 15 Goodwill accounts, 6–7 Great Depression: effect on banking/investments, ix effect on bond issues, 203 Great Stock Market Scam, 2–4 role of authorities in, 33–34, 194 Guaranteed insurance/investment contracts (GICs), 136 Guarantee Trust Life Insurance Company, 221 Guide to Health Insurance for People with Medicare, 233 Health insurance, 212–223 for surviving spouse, 261 Health maintenance organizations (HMOs), 212–216 problems for seniors, 213–216, 229 what to if dropped from, 221–223 Hempel, George H., 201, 203 Home equity, U.S levels of, 112 Hospice care, 228–229 and Medicare, 303–304 8905_Weiss_idx_f.qxd 12/20/01 1:49 PM Page 331 Index Hulbert Financial Digest, 107 Hunt, James, 162, 172 Hunt, Mary, 269 Illinois Annuity & Insurance, 144 Immediate annuities, 178, 185–186 Indiana, long-term care Partnership Programs in, 234, 315 Individual retirement accounts (IRAs) See Retirement accounts Inflation protection, for long-termcare insurance, 246–248 Informix, InfoSpace, 38 Initial public offerings (IPOs), 18 Insurance See also Life insurance; Long-term-care insurance; Medigap insurance for municipal bonds, 197–201 Insurance advisors, 171–172 fee-only, 171 Insurance agents: choosing, 169–173, 240–241 purchasing long-term care insurance through, 240–249, 308–312 sales tactics used by, 163, 170–171, 234 Insurance companies, 134–151 See also individual types of insurance choosing, 144–151, 188–189 deceptive practices of, 158–162 junk bond trading by, ix–x, 134–143, 194–195 policy selling by, 160 ratings of, ix–xi, 138–143, 149–151 regulator relations with, 140–142, 156, 195 secrecy by, 155–157, 218 strongest/weakest, 146–148, 172 Intel, Interest: on CDs, 56 rates, effect on bonds, 136–137, 259 on Treasury-only money market funds, 60–61 underpayment by banks, 50–51, 56 Investments: annuities as, 179 combining with life insurance, 165 conventional wisdom about, 29–32 diversity in, 32, 82 for divorced people, 260–269 free advice on, 26–29 effects of Great Depression on, ix guaranteeing results of, 135–136 for newly single seniors, 252–269 phone sales pitches for, 286–287 protecting, 110–131 in real estate, 111–114 selling, 264–265 strategies for, 177, 258–260 tax-deferred, 177 watchdog agencies for, 288–299 Investors, government protection of, 33–34 Issue-age pricing, 221 JDS Uniphase, vii John Hancock Mutual Life, 159 Joint accounts: on annuities, 184 on Treasury-only savings and checking, 72 331 8905_Weiss_idx_f.qxd 12/20/01 1:49 PM Page 332 332 Index Joint tenants in common ( JTIC), 72 Joint tenants with rights of survivorship ( JTWROS), 72 J P Morgan Chase, 52 Junk bonds, 137, 140, 207 trading by insurance companies, ix–x, 134–143, 194–195 Katt, Peter, 172 Katt & Company, 172 Lawyers, in arbitration, 40–41 LEAPS options, 118–120, 124 advantages of, 118 choosing, 119–120 disadvantages of, 119 Level premium term life insurance, 166 Levitt, Arthur, 12 Life insurance, 154–173 annual renewable term, 166 versus annuities, 178 choosing, 155–156, 161–173 collecting benefits on, 261 combining with investment products, 165 determining affordability of, 164 determining amount needed, 165–166 determining need for, 163–164 level premium term, 166 policy illustrations on, 161–162 regulation of, 156–158 reviewing policy, 169 terminology of, 164–165 term versus permanent, 167 universal, 168 variable universal, 168–169 whole-life, 167 Limit orders, 285 Liquidity: of CDs, 56 of Treasury-only money market funds, 56, 66 Load funds, 81–82 Long-term-care, 226–249 future of, 236, 247 and Medicaid, 231, 233–234 and Medicare, 232–233, 302–305 and Medigap insurance, 232–233, 302–305 options in, 227–230, 239 Partnership Programs in, 234 standards for, 229–230, 244 Long-term-care insurance, 231–249, 302–305 activation requirements for, 246 alternatives to, 232–234 benefit restoration for, 248–249 choosing, 234–240, 306–312 cost of, 230, 234–239 inflation protection for, 246–248 nonforfeiture of, 247–248 for nonmedical care, 304 purchasing through insurance agents, 240–249, 308–312 rate hikes on, 242 ratings of, 237, 241 spousal discounts on, 242–243 terminology of, 244–245 waiver of premiums for, 247 “Long-Term Care Planning: A Dollar and Sense Guide,” 306 Lucent Technologies: merger with Ascend Communications, sales practices of, 9–10 McKesson HBOC, Medicaid and long-term care, 231, 233–234 8905_Weiss_idx_f.qxd 12/20/01 1:49 PM Page 333 Index Medicare: and hospice care, 303–304 and long-term care, 232–233, 302–305 Medigap insurance, 216–223 choosing, 218–223 eligibility for, 222 and long-term care, 232–233, 302–305 pricing of, 220–221 ratings for, 223 standard plans for, 216–218 Mergers, use for earnings distortion, Merrill Lynch, arbitration cases involving, 38 and Conseco report, 14 MetaStock, 90 Metropolitan Life, 159 Monocle, 90 Moody’s: bond ratings of, 137 insurance rating procedures of, 138–139 municipal bond ratings of, 200, 207 rating of Executive Life, 139–140 Morgan Stanley Dean Witter, reward/punishment system used by, 14 Morningstar, 99 Mortgages: issues in divorce, 267 refinancing, 113 U.S levels of, 112 Municipal bonds, 194–209 features of, 196 fees for ratings on, 200 insurance for, 197–201 noninsured, 201–203 problems with market, 204–206 ratings of, 196, 198–199, 205–208 ratings of insurers, 200–201 regulation of, 201–202 risk in, 199 scandals involving, 202–203 selling, 208 size of market, 196, 201 sources of information on, 208–209 strategies for buying, 206–208 versus Treasury securities, 204 unrated, 206, 207 Mutual Benefit Life, 141, 189 Mutual funds, 31–32 and alpha, 90–91 choosing, 86–89, 161 containing bonds, 82 effects of 2000–2001 crash on, 32 information on, 78–79 investment strategies for, 78–93 load on, 81–82 performance of, 31–32 protection of, 79–80 “supermarkets” for, 86–87, 91–93 Nasdaq, performance in 2001, vii, 3, 116 National Association of Security Dealers (NASD): and broker arbitration, 45 broker database of, 282–284 National Endowment for Financial Education (NEFE), 19 Nationwide Life Insurance Company, 221 New York: long-term care Partnership Programs in, 234, 316 municipal bond issues of, 202, 203 real estate market in, 111 333 8905_Weiss_idx_f.qxd 12/20/01 1:49 PM Page 334 334 Index New York Life, 155 New York Stock Exchange (NYSE), online services of, 301 Nikkei Stock Index, 116 9/11: effects on airline industry, viii effects on economy, vii Nine West, Nonforfeiture, 247–248 North American Advance, 18 North American Securities Administrators Association (NASAA), 286 Northwest Airlines, viii Nursing homes, 226–227, 239 See also Long-term care average length of stay in, 245 probability of requiring, 229 types of, 230 Older Women’s League, 269 Options See also LEAPS options; Stock options cautions about, 131 determinants of profitability, 129 expiration of, 123, 131 at the money, 123 in the money, 123, 126 principles of investing in, 118–131 put options, 118, 124 scenarios for, 125–129 Oracle, Organizations for seniors, 313–315 Partnership Programs, 234, 315–316 Penn Treaty, 238–239 Pensions, issues in divorce, 268–269 Peterson, Ann Z., 269 Philadelphia American Life Insurance Company, 221 Physicians Mutual Insurance Company, 220 Policy illustrations: on annuities, 190–191 on life insurance, 161–162 Pooling of interest, Pool-of-money contracts, 245–246 The Postwar Quality of Municipal Bonds, 201 The Postwar Quality of State and Local Debt, 201 Premiums, 130 life insurance scams involving, 159–160 waiver of, for long-term care insurance, 247 Priceline.com, Price Waterhouse, 92 Procter & Gamble, Profunds, 115 Prudential, 33, 159 annuity scam of, 154–155 Public Investors Arbitration Bar Association, 41 Put options, 118, 124 See also LEAPS options Pyramid Life, 238 Qualified Domestic Relations Orders (QDROs), 268–269 Ratings: bias in, xi, 13–16, 25, 200, 206, 207 of bonds, 137, 140 fees for, xi, 200 of insurance companies, ix–xi, 138–143, 149–151 of long-term-care insurance, 237, 241 of Medigap insurance, 223 8905_Weiss_idx_f.qxd 12/20/01 1:49 PM Page 335 Index of municipal bond insurers, 200–201 of municipal bonds, 196, 198–199, 205–208 of stocks, 98–99 Real estate: commercial, 114 effects of 2000–2001 crash on, 111 as investment, 111–114 issues in divorce, 266–267 second/vacation homes, 114 Recession, risk of, 25 Reserve National Insurance Company, 220 Retirement accounts: choosing options in, 80, 83–85 issues in divorce, 268–269 using Treasury-only money market funds for, 72–73 Retirement communities, 229 See also Long-term care Reverse-index funds, 115 Risk: of corporate bonds, 259–260 estimating, 116 evaluating tolerance for, 81–82, 270–278 minimizing, 80, 116–117 of municipal bonds, 199 for people age 50+, 48–49 versus safety, 258 in stocks, 24–26, 48–49, 116, 260 Robomatics, 18 Rosenberg, Stephen M., 269 Rydex Arktos Fund, 115 Rydex Tempest Fund, 115 Rydex Ursa Fund, 115 Safe Money Report, xiii Safety-Kleen, Sagami, Tony, 9, 86 Sales managers, compensation of, Sales reports, padding of, 8–10 Sanders, Jerry, 11 S&L scandal, ix, San Francisco, real estate market in, 111 Savage, Terry, 269 The Savage Truth on Money, 269 Savings rates of U.S families, vii–viii Seattle, real estate market in, 111 Section 529 education plans, 164 Securities and Exchange Commission (SEC): broker database of, 283–284 online services of, 300–301 role in Great Stock Market Scam, 194 rules on guaranteed returns, 136 Seven-day simple yield, 69 Silicon Valley, real estate market in, 111, 112 Silverman, Henry, Smithers & Company, Ltd., 11 Social Security, for surviving spouse, 262 Society of Actuaries, 158–159 Standard & Poor’s: bond ratings of, 137 insurance rating procedures of, 138–139 municipal bond ratings of, 200, 207 stock ratings of, 99 Statements of claim, 43 Stock options: earnings manipulation through, 10–12 as executive compensation, 5–6, 10–11 335 8905_Weiss_idx_f.qxd 12/20/01 1:49 PM Page 336 336 Index Stocks See also Investments; Mutual funds amount to buy, 32 buying through broker, 285–286 crash protection for, 114–120 effects of 2001 crash on, vii, 26, 30 as executive compensation, 5–6 individual, investing in, 96–107 monitoring performance of, 99–100 optimum investment terms for, 29–30 penny manipulations of, 18 performance in 2001, vii, proportion of money to invest in, 48 ratings of, 98–99 risks of, 24–26, 48–49, 116, 260 timing of selling, 31 trading online, 104 Stock Scouter, 99 Strike price, 10, 123, 130 rolling down, 10–11 Summit Medical, Sunbeam Corp., Superior Bank, 52 Surrender charges, 181, 182, 189–190 Taxes: on annuities, 184 on CDs, 64–65 deferral of, 177 estate, 163 issues in divorce, 266–269 on Treasury-only savings and checking, 64–65 Taxpayer Relief Act of 1997, 267 Teaser rates, on annuities, 190 Telecommunications industry, cash flow in 2001, viii Treasury-only money market funds, 60–69, 72–73, 285–286 advantages of, 60–66 bank custodianship of, 60, 67 checking parameters of, 65–69 deposits into, 75 disadvantages of, 66–67 fees for, 61–62 interest on, 60–61 joint, 72 limits on account size, 63–64 liquidity of, 66 maximizing yield of, 73–75 operation of, 60 for retirement funds, 72–73 setting up, 67–73 statements from, 75 tax exemptions of, 64–65 trust/guardianship, 72 withdrawals from, 66, 74 yield of, 60–61 Triglia, Vincent, 188 Trump, Donald, 14 Trust funds, 72 Turner, Lynn E., 12 Tyco, Union Bank of Switzerland, 52 United American Insurance Co., 220, 239 United Healthcare Insurance Company, 220 United Medical and Surgical Supply Corporation, bond issues of, 202–203 United Seniors Health Cooperative, 306 Universal life insurance, 168 UNUM Life, 238 USAA Life, 172, 220 8905_Weiss_idx_f.qxd 12/20/01 1:49 PM Page 337 Index U.S General Accounting Office (GAO), xi, 16, 39–40, 142, 252 U.S Treasury securities, 56, 256–257 See also Treasury-only money market funds versus annuities, 186–187 versus CDs, 56, 64–65, 257 versus municipal bonds, 204 reliability of, 64, 256 types of, 256–258, 259 VA Linux, 18 Value Line, 99 Vanguard Airlines, viii Variable annuities, 179–180, 189 See also Annuities Variable universal life insurance, 168–169 Viatical settlements, 160–161 Washington Public Power Supply System (WPSS), bond issues of, 202 Weill, Sanford, 5–6 Weiss, J Irving, viii–ix Weiss, Martin, ix–xii Weiss Ratings, 81 of brokers, 104 of insurance companies, 140, 145–149 of long-term-care insurance, 237, 241 of Medigap insurance, 223 philosophy of, x, xi of stocks, xi, 99 Whole life insurance, 167 Widows/widowers: financial advisors for, 262–263, 265 health insurance for, 261 investment strategies for, 252–269 life insurance for, 163, 261 Social Security benefits for, 262 Women’s Legal Defense League, 269 World Insurance Company, 221 Yahoo!, merger with Geocities, 337 8905_Weiss_idx_f.qxd 12/20/01 1:49 PM Page 338 ACKNOWLEDGEMENTS This book packs the combined pool of knowledge of everyone in my family and most of the 180 employees of Weiss Group, Inc Dad, probably the only person to make a fortune in the Crash of ’29 and live to it again in the Crash of ’87, left behind 70 years of rich experiences and analysis My son, Anthony, closed the loop by reviewing the final and, as usual, finding spelling and conceptual errors that virtually no one else would have ever noticed Clayton Makepeace and Dan Rosenthal, easily the two best copywriters in the world today, deserve credit for the inspiration of some of the most exciting passages, and Mary Terasa Martin helped with the rest David Lackey, president of Weiss Ratings, Inc., gets the prize as the book’s Most Perceptive Critic; and all the Weiss Ratings analysts, as the book’s Most Consistent Contributors My special thanks to Andrew Wilkinson (financial markets), Dave Proko (banking), Donna O’Rourke (health insurance and long-term care), Julie Trudeau (proofing), Kevin Baker (financial markets), Melissa Gannon (vice president of Weiss Ratings), Sharon Parker (investments), Stephanie Eakins (property casualty insurance), Ted Brownstein and Tim Timothy Schierer (life and health insurance), Tracy Webb (brokers and mutual funds), Dana Elias, Leslie Underwood and Mary Ellen Tribby (making things happen), Debra Englander (editor) and Tom Laughman (production) ... 12/20/01 1:48 PM Page i THE ULTIMATE SAFE MONEY GUIDE 8905_Weiss_fm_f.qxd 12/20/01 1:48 PM Page ii 8905_Weiss_fm_f.qxd 12/20/01 1:48 PM Page iii THE ULTIMATE SAFE MONEY GUIDE How Everyone 50 and... example They know that if they report truthfully, they’ll have to 11 8905_Weiss_01_f.qxd 12/20/01 1:38 PM Page 12 12 The Ultimate Safe Money Guide report a serious drop in corporate earnings Their... commission, they get a share of the proceeds And instead of making money whether you buy or you sell, they only make money when you buy They have a direct, vested interest in the results They want