Swing States, Safe Seats & Your Retirement

Anytime we have a major election in this country, there’s a lot of angst about polling data and whether or not the polls were accurate.

The polls are almost never wrong. It’s just that most people don’t understand how they work.

Anytime polls are conducted, there’s a set of assumptions that has to be made about what the electorate is going to look like. How male or how female will the electorate be? How black or how white? How religious or non-religious? And if any one particular demographic doesn’t show up to vote with the same intensity that the pollsters expected, it can skew the accuracy of what the polls are predicting.

This is why pollsters tell us the “margin of error.” Some people think that the margin of error is something that statisticians just make up to cover their butts. But it’s quite a bit more complex than that. It’s essentially their way of saying that they don’t know exactly who is going to show up to vote and who isn’t, so they’re going to give us a range of outcomes that could occur, depending on what the electorate actually ends up looking like.

So when you see that Bill Nelson is leading in Florida by two points in several consecutive polls, it might be tempting to think that the consensus is that he’s going to win. But pay attention the margin of error. If the margin of error is four, that essentially means that the range of outcomes could be anywhere from Rick Scott winning by two points all the way up to Nelson winning by six. (And as I write this post a week after the election, they’re still trying to sort out the votes in Florida).

But sometimes you have races that just don’t get any coverage at all. Even though they conduct polls in California, no media outlet feels the need to bother reporting on Dianne Feinstein’s lead, because everybody knows she’s going to win. Same story with John Barrasso in Wyoming, Roger Wicker in Mississippi, or Amy Klobuchar in Minnesota. Unless you live in those states, you might not have even realized that those folks were up for re-election.

That’s because it’s a “safe seat.” If pollsters see that Klobuchar is leading by 25 points and the margin of error is four, there’s not much to talk about. That means she could win by anywhere between 21 and 29 points, depending on who shows up to vote. But either way, she wins. For all intents and purposes, it’s statistically impossible for her to lose. (As it turned out, she won by 24 points).

This is the same kind of certainty that you should try to build into your retirement plan. Financially speaking, you don’t want to live in a swing state.

Think of stock market returns as being analogous to voter turnout. We don’t know who’s going to show up to the polls, just like we don’t know what the market is going to do from year to year. So the best we can do is predict a range of potential outcomes.

If you’re on the brink of retirement, we can assess your age, investments, life expectancy, and how much income you’ll need from your portfolio each year, and then see what the “polls” tell us. If the spectrum of potential outcomes ranges from a best case scenario where you have $325,000 left when you die to a worst case scenario of you running out of money at 79, then you live in a swing state and your seat can’t be considered even remotely safe.

On the other hand, if your range of outcomes falls somewhere between you dying with somewhere between $500,000 and $750,000, then your seat is safe and you don’t have to sit around sweating it out on your financial “election night.”

If you have a range of outcomes that isn’t satisfactory in the political realm, you don’t just give up. You invest more on TV ads, get more volunteers out in the community to knock on doors, and crank up the opposition research on your opponent.

If you don’t like your range of outcomes in the financial realm, there’s also plenty that you can do. You can work an extra year or two, decrease how much you take from your portfolio each year, downsize to a smaller house, or plan to work a part-time job for a while after you retire.

There’s always something you can do, the key is knowing where you stand.

What if, financially speaking, you’re running for Senate as a Democrat in Mississippi, but you think you’re in Vermont? Things probably aren’t as rosy for you as you think.

Or, on the other hand, what if you’re a Republican and you think that you’re in California, but in reality you’re actually in South Carolina? You’re probably in much better shape than you ever dreamed.

You just don’t know until you see what the pollsters are saying.

Covering the Costs of Alzheimer's Disease

Guest blogger Lydia Chan runs Alzheimer’s Caregiver, a resource for those who have been thrust into the position of caring for a loved one who’s battling Alzheimer’s.

Covering the costs of healthcare is never easy. But when it comes to planning for long-term care, it can be downright overwhelming. Many seniors find themselves in difficult situations after retirement and have to look for ways to raise funds in a hurry after a health scare or hospital stay. It’s important to do some research on the costs of long-term care, especially after an Alzheimer’s diagnosis. Being well-informed will help you stay on top of your finances—both now and in the future—and will ensure that you aren’t left scrambling for funds in the event you do require expensive care.

One of the keys to researching the costs of Alzheimer’s care is to make sure you’re well-informed on your insurance policies, including Medicare and Medicaid. These programs can help significantly with covering the costs of healthcare, but they don’t cover everything. Some treatments and types of care can run into the thousands of dollars very quickly.

Look for help

There are many programs out there specifically for seniors who need help paying for treatments, medicine, and medical bills. Do some research on the best ways to get assistance. Most of these have strict requirements regarding income level, age, and health status, so it’s crucial to ensure you have all the information you need ready to go when you inquire about getting help.

Figure in out-of-pocket costs

Even with Medicare or Medicaid, the costs of medicine and some treatments can be astronomical. Do some research online to find out how much you’ll be responsible for when the time comes to start treating the disease, and look for specific numbers in regards to medication and prescriptions. In some cases, the type of medicine you can get is dependent upon your insurance, but there may be a similar treatment that has a generic alternative.

Look into padding your savings

If you’re worried about racking up medical bills that you’ll be unable to pay, consider looking into a reverse mortgage, which will allow you to free up some cash in a short amount of time. There are many horror stories out there about reverse mortgages, but if you find a reputable lender who knows what they’re doing, they can guide you through the process without stress. Shop around for the best company for your needs; you can start with this list provided by Consumers Advocate.

Get educated about Medicare

Medicare can be invaluable to seniors in many ways. However, as with any insurance policy, it can be difficult to understand. Make sure you know all the details of your own policy and find out what it will cover in the event you have to stay at the hospital or in a long-term care facility in the future. In many cases, Medicare will only pay for about 100 days of a nursing-home stay, and only gives limited coverage on medicines. Read up on their policies and, if possible, talk to someone who can help you create a plan.

Covering the costs associated with Alzheimer’s disease can be stressful and overwhelming, especially if you’ve recently lost a partner or spouse. Just remember that you are not alone; there are many companies, programs, and people out there who can help you figure out how to take care of your future. Practice self-care as often as possible so stress and anxiety aren’t an issue. With a good plan, you can ensure that your diagnosis doesn’t define you.

Intellectual Dishonesty & Investing: A Lesson from Kanye West

Almost everybody on your TV is lying to you…and they don’t even realize it.

In February of 2018, FoxNews host Laura Ingraham took exception to Lebron James and Kevin Durant criticizing Donald Trump.

Ingraham said, “It’s always unwise to seek political advice from someone who gets paid $100 million a year to bounce a ball. Lebron and Kevin, you’re great players, but no one voted for you…so keep the political commentary to yourself, or as someone once said…shut up and dribble.”

Ingraham was vilified throughout the media, castigated for being a white woman who would tell a couple of black men, “Hey, just do your job…we don’t care about your opinion on politics.”

Fast forward to just a few weeks ago when, on Saturday Night Live, Pete Davidson weighed in on the fact that Kanye West had aligned himself with Trump: “Kanye is a genius, but a musical genius. You know, like Joey Chestnut is a hot-dog eating genius. But I don’t want to hear Joey Chestnut’s opinion about things that aren’t hot dog related.”

So this is the same thing, right? A white guy telling a black guy, “Just stick to what you’re good at and keep your political opinions to yourself.”

But for some reason, there was no media outrage this time. Davidson was a cultural hero, a comedian who could so poignantly verbalize what everyone already thought.

Speaking of Kanye, his recent White House visit made a few headlines. After he regaled the gathered media with a litany of bizarre thoughts and no shortage of profanity, MSNBC’s Velshi & Ruhle wore out their fainting couch, calling his visit to the Oval Office “an assault on our White House.” This was the same Oval Office, mind you, where their hero Bill Clinton got oral sex from an intern a couple of decades ago…but sure, it was Kanye’s language that sullied the dignity of the place.

Meanwhile, let’s head over to FoxNews and see what Sean Hannity had to say about Kanye’s visit…

“What’s wrong with what he’s saying? What’s wrong with more jobs? What’s wrong with safe neighborhoods? Kanye is realizing that the Democrats had eight years and they had a failed agenda. Look at what’s happening. The Trump agenda is creating a future for the forgotten men and women in this country.”

But contrast this with what Hannity said in 2011 when he was clutching his pearls after another rapper, Common, visited the Obama White House:

“It baffles me that this is a person the White House chooses to set as an example for our kids…this is inappropriate for a President and he goes back to his radical roots again and again and again.”

You’ve gotten the point by now, but allow me one final Kanye indulgence, because it’s just too perfect. Kanye’s visit with Trump took place in the immediate aftermath of the Florida panhandle being devastated by Hurricane Michael. Which is amusing, because Trump tweeted this in 2012:

“Yesterday Obama campaigned with JayZ & Springsteen while Hurricane Sandy victims across NY and NJ are still decimated by Sandy. Wrong!”

So what’s the point of highlighting all of this hypocrisy and goalpost-moving all across the political spectrum? The point is that all of these people, more than likely, don’t even realize that they’re not being truthful with you in presenting their analysis.

You can call it whatever you want…double standards, intellectual dishonesty, confirmation bias. The bottom line is that as humans, we’re wired to continue believing what we already believe, and then look around for things that seem to support our way of thinking.

So if this is a problem in the political realm (as well as in religion, sports, and culture in general), doesn’t it stand to reason that it would be a problem in the financial world too? Here’s a few examples of cases where a financial advisor might suffer from intellectual dishonesty without even realizing it…

1) Suppose you have the option of taking a lump sum buyout on your pension or just keeping the monthly lifetime payout. Your advisor is certain that you’re better off to take the lump sum, invest it, and then create an income from those investments. He might be right. But it’s also possible that he’s been conditioned to believe that you should always take the lump sum no matter what (because his firm can’t make any money off of that money if it stays in the pension plan).

2) You have $125,000 in the bank and you owe $55,000 on your house. You’re wondering if you should just pay off the mortgage. An advisor tells you not to pay off the house, instead you should take that money and invest it because, with interest rates so low, you can make more money by investing than you’ll lose by paying interest on the mortgage. Again, he might be right. But again, it might be possible that he’s been conditioned to believe that you should never pay off your house (because, again, it doesn’t profit him for you to get rid of your mortgage payment).

3) An advisor tells you that your current _________  is inferior and he has one that’s better. You can fill in the blank with anything…mutual fund, annuity, life insurance policy, REIT, etc. He might be right, his might be better. Or it’s possible that his company has sold him on the benefits of their product for so long that he’s no longer able to see any downsides to it and believes that it trumps anything else on the market, regardless of whether or not that’s actually true.

So how do you avoid being lied to by an advisor that doesn’t even know he’s lying? You can start by looking for a few things…

Independence: Is the advisor able to make his or her own decisions, or does he work for a big brokerage firm (that likely tells him what he should or shouldn’t sell)?

Understanding gray area: Does the advisor understand that most issues aren’t black and white and that there’s some gray area to explored? Or does his sales pitch highlight only the bad things about your current situation while explaining only the good things about his approach?

Listening ability: Does the advisor ask probing questions to get to the bottom of your situation, or does he just look at your account statement and say, “Here’s what you need to do” without any deeper exploration?

Ability to articulate convictions: If an advisor feels strongly about what you should do but you have questions about it, are you able to get a direct and thorough answer, or does the answer sound more like a rehashing of the sales pitch you’ve already heard? If you present an alternate scenario, is the advisor able to entertain the thought, or does he dismiss it immediately?

The bottom line is that it’s actually really hard to operate successfully as an advisor that truly has the best interest of the client in mind. But it’s important, necessary work, and there are people who can do it effectively. Just be aware that they usually don’t work for a company with a nationally-recognized brand name.

Real Estate Investing: What's a Good Return

Guest blogger Derek Dawson is the Founder and CEO of Dawson Property Management. Derek went to Florida State University and received a Bachelor’s of Science in Finance and Real Estate and has lived in Charlotte since 1994. In 2011, Derek founded Dawson Property Management and became the Broker-in-Charge. Derek has a passion for the property management industry and strives to use his experience, knowledge, and hard work ethic to satisfy all of his clients to his best ability.

What’s a Good Return on Real Estate Investment?

Chasing after unrealistic rates of return is one of the main reasons newbies investing in real estate lose money. Very few folks understand how compounding works.

So, how exactly does compounding work? Essentially, compounding is whereby an asset’s earnings, from either interest or capital gains, are reinvested to generate additional earnings over a period of time.

Here’s an example to illustrate this better. Assume you’ve invested $10,000 at 10% for 100 years. Using the concept of compound interest, that would translate to a staggering $137.8 million.

At twice the rate of return, 20%, the same $10,000 investment would result into a whopping $828.2 billion. Now, that’s a lot of money!

Does the difference between a 10% return and a 20% return seem counter-intuitive? Well, that’s what geometric growth is all about.

This concept of compounding works equally well in real estate as it does in the sharemarket or with cash in the bank. For instance, a property worth $400,000 having a growth rate of 5% a year is worth $650,000 after ten years.

Bump up the rate of growth by two percent and it almost doubles to $787,000. In addition to boosting your property’s value, you can also benefit from charging higher rents.

How Do You Measure Return on Real Estate Investment?

The purpose of investing in real estate property is to make money. But exactly how do you make money? You can only make money if your investment is offering a good return on your investment.

So now, what is a good return on a real estate investment? Unfortunately, the answer isn’t as straightforward. To help you calculate the potential ROI, here are 3 most widely used methods.

1.    Cash on Cash Return

Cash on Cash return is a widely used metric for determining the profitability of a real estate investment. It measures the annual return on your investment based on total cash investment and net operating income (NOI).

Suppose you’ve bought a rental property through a mortgage worth $350,000:

CoC varies depending on the method of financing. It’s higher when a property is bought via mortgage and lower when the same property is bought fully in cash.

Suppose you buy a property for a total of $350,000 through a mortgage. You pay a down payment of $70,000 (or 20%) and rent the home for $1,800 per month. Then the annual property expenses add up to $4,000.

In this case, Cash on Cash return becomes 25.1%. (12 x $1,800 - $4,000)/$70,000.

When the property is paid fully in cash, then CoC becomes 5.0%. (12 x $1,800 - $4,000)/$350,000.

So, what’s a good ROI for investment properties with regards to CoC return? Experts generally agree that a good Cash on Cash return is anything above 8%.

2.    Capitalization Rate

Also called the cap rate, capitalization rate determines an income property’s return based on the net operating income (NOI). It’s another widely popular metric for calculating the ROI on a rental property.

Unlike Cash on Cash return, capitalization rate doesn’t vary with the method of financing.

Supposing you buy a rental property worth $500,000 and charge your tenants $3,200 per month. Furthermore, the annual expenses related to that property add up to $6,000.

The cap rate for that property will then become 6.5%. (12x$3,200 - $6,000)/$500,000.

Similar to the cap rate, a good CoC return is anything above eight percent and especially above ten percent.

3.    Return on Investment

Also called ROI, return on investment measures the gain or loss generated on an investment relative to the amount of money invested.

It’s usually used to compare the efficiency of different investments, to compare a company’s profitability or used for personal financial decisions.

Suppose you buy an income property for $400,000 and pay an additional $15,000 in related expenses. Then rent it out for $2,500 per month. The ROI for that rental property then becomes 7.2%. 12x$2,500/($400,000 + $15,000).

To know whether a real estate investment is profitable or not, you need to know what a good ROI is. Again, there is no straightforward answer. Experts will give you varying answers.

ROI varies on investment risks, the location, and the investment property size. Some investors would appreciate a 6% ROI, while some would be happy with anything above 40%. Generally speaking, avoid anything below 15%.

4. The One Percent Rule

This tool quickly filters and evaluates the potential of a real estate investment. According to the rule, gross monthly rent should be at least one percent of its final price.

For example, for a house worth $300,000 to be profitable, you would need to rent it out for $3,000 a month.

Numbers never lie. If you do your math right, you’ll have a pretty good idea of what your investment’s return will be.