Several years ago I was in New York City for a business conference. There were four of us from Boise sharing a hotel room on the 9th floor of a hotel. A hotel that had more floors than Idaho’s two tallest buildings combined. Crammed in a taxi returning from dinner we turned a corner and saw flashing lights and emergency vehicles several blocks a head. Having no idea where we were in the city, I jokingly said, “They’re putting out the fire in our hotel.”
As we approached the block we could see fire trucks with water dripping underneath as they pumped water through the hoses that ran through the front door of, ohhhhh nooooo, our hotel. Firefighters with sooty faces were scurrying back and forth carrying axes, saws, and ladders just like in the movies.
As it turned out everything was okay for us. The fire was one floor below our room and the firefighters had contained it to one room. They labored away for several hours mopping up. Mopping up is the term used for the unglamorous, messy, and hard work done to clean up after a fire is extinguished. Once the firefighters were gone the hotel attempted to calm everyone and allowed us back into our rooms. My friends were excited, relieved, and ready to go to bed. I was nervous, anxious and wanting to assign two hour shifts of fire watch through the rest of the night.
Having been a firefighter for several years, I was remembering how many times we had returned to fire scenes for restarts. A restart happens when a fire is extinguished and everyone goes home happy thinking the worst is behind them. But some hot spot, or ember, is missed and hours later the fire restarts. Knowing all of this left me without the feeling of security and calm desired to sleep blissfully.
I have that same feeling listening to the euphoria following Monday’s stock market surge. Many people starved for good news are jubilantly thinking, it’s finally over, the market is going up. The fire of a free falling market may be over, but caution is still the best option. We may have seen the bottom, but just as likely not. There is still a high probability of restarts, more downs. In addition, whether the bottom has been touched or not, there are months of mopping up left. Economic recovery will take time. It is okay to relax while maintaining a cautious outlook regarding your investments. Prudence and patience are the keys to recovery. It is time to think about your plans for renovating your investment portfolio.
I opened my eyes and lay still trying to figure it out. What is it? What’s wrong? Something isn’t right, but what? My mind is racing at top speed, analyzing, calculating, and not coming up with the answer. I slowly raise my head, turning slightly and then I see it. Jumping out at me! Clearly visible now, it’s the unmistakable red hue, of ……2:38. The digital clock reads 2:38. It’s 2:38AM and instead of dreaming of sugar plums I am awake. Wide awake and, by anyone’s definition it is the middle of the night. The cause is so simple and common I am ashamed to admit it. WORRY! In my case I am worrying about all the things I need to get done and not having enough time to do them. Many of which are beyond my control but important. Then it strikes me that this is how people feel when they look at their investment statements and see three shades of red. The red of negative return numbers, the red sheen of anger and the red flush of embarrassment. You have worked so hard to build your life savings up. It is invested in the stock market, which is falling like a rock. How could I let this happen? I should know better. Have I been taken? How could I be so dumb? Why did I choose that investment? Why did I trust that investment advisor? Why didn’t I get some advice? At this point you know you have failed the sleep test. When you go to bed at night and wake up worrying about your investments, you are in the wrong investments. I feel better now. Realizing that what I do is important. I help people pass the sleep test, 1, 2, 3, 4 sheep and I am out.
The HR Manager for a client company called this week asking if an employee could go to the bank and open Health Savings Account (HSA). The short answer is yes. But this situation is like one of your children asking if cats are allergic to paint thinner. The best response is not the answer you give but the questions you ask. Follow up questions regarding the employee opening a HSA account at a bank painted a bigger picture. The employee in question had come to the HR Manager requesting that money be withheld out of the employee’s check, on a pre-tax basis, to be deposited into a new HSA account at the local bank. The significance of this scenario involves two major issues. One is the lack of understanding regarding HSA accounts and associated requirements to qualify for the state and federal tax benefits. The second is the misrepresentation by banks promoting and selling HSA accounts.
There are two key parts to fully qualify for tax benefits at state and federal level for an HSA. One is the actual HSA account where contributions are deposited to be later withdrawn for medical expenses. Often this is an account at the bank. Some banks are aggressively advertising HSA accounts. The second part is the High Deductible Health Plan (HDHP) that must meet specific plan benefit guidelines. The catch, being that if the health insurance you are covered under doesn’t meet the HDHP guidelines, the deposits into the HSA account do not qualify for pre-tax status. To get both state and federal tax benefits with a HSA account your health insurance plan must meet the HDHP guidelines. The majority of individual health insurance policies and employer sponsored group health plans do not meet the HDHP guidelines.
In the case above the employee can open a HSA account at his bank. He can deposit money in the HSA account. He cannot deduct the HSA deposits on his federal tax return since his employer sponsored health insurance is not an HSA qualified HDHP plan.
Watch for a coming blog reporting on our follow up research with banks marketing HSA accounts.
When I was in elementary school we were taught STOP DROP and ROLL. This is the correct technique to use if you or your clothes catch on fire. The natural tendency is to panic and run around trying to escape the flames making things worse. It fans the flames causing them to burn faster and hotter. If you are ever on fire, you are supposed to; stop running, drop to the ground, and roll over and over to smother the flames. The purpose of the repetition is to make it an automatic response to replace the natural tendency to panic. Drilling this concept into our heads repeatedly worked in theory. Several decades later the STOP, DROP and Roll still rolls off my tongue. I say in theory, since I have never been accidently set on fire. There was one time, when making a fire prevention video, that I let them light my clothes on fire intentionally. But, that story will have to wait for another time. In reality, most people don’t even know someone who has been on fire that needed to stop, drop and roll. For those of you old enough, you may remember that, Richard Pryor had some experience with this. Panic is not a good option when you are on fire, when the market is dropping, or any other time. Yet with the recent economic events, and big swings in the stock market, many investors have reacted and initiated a panic strategy. Sell, sell more, and sell all. Selling everything, converting to cash, stuffing the cash in the mattress, and other actions they would never have considered doing six months ago. The unexpected severity of the economic storm has resulted in the market dropping nearly 50% from the last high in October of 2007. Thus, a panic sell off that only compounded the market drops. It is interesting that even those who intentionally took on higher levels of risk panicked with the big loss of value in the markets. Whether, or not, we are at the bottom of the market no one knows for sure. It is likely that we will continue to see some large ups and downs for several months before another bull market occurs. The equivalent of stop, drop and roll for investing is stop, drop and know. Stop before you sell everything. Drop the fear and doomsday attitude prevalent in the media and misguided investors with short memories. Know what your investment strategy is, your time frame for needing the invested assets, and your risk tolerance. If they are the same as when the market was up, then don’t change them now. Remember stop, drop, and know. Panic is never a good investment option.
As a backcountry pilot I often take people on scenic flights through the Sawtooth Mountains. One of the favorite routes provides a photo opportunity where I fly directly towards a high rocky crag. The view out the front looks like you are going to run directly into the rock cliff. As it looms in front the picture is snapped and we turn away from the cliff. Recently a friend was up front with camera poised and our wives were in the back. I was approaching from a different angle than usual. As I turned toward the cliff for the picture I realized the angle was wrong and just before turning away I spoke my thoughts out loud saying, “I’m not going to make it.” Meaning I wasn’t going to make the angle for the picture. You would be surprised how fast passengers talking get very quiet and react when they hear the pilot saying, “I’m not going to make it.” Fortunately it only took a few seconds of reassurance for their heart rates and conversation to return to normal. The choice of words was inadvertent and untimely, but no harm resulted. The same cannot be said about the media coverage of the financial institutions and stock market.
The media’s words are not inadvertent or harmless. Their use of words sensationalizing stock market events are fuelling fear and promoting panic. There is a difference between reporting serious events and trying to create consequences. No prudent person can question the seriousness of the current financial situation. But reporting in a manner that causes fear to fester into panic and pandemonium is inexcusable. While the powers that be are doing everything they can to calm investors and stabilize the economy the media is busy fanning the flames.
The market fall of 777 points on Monday September 29th, is a large drop and should not be taken lightly. However, the media reported it as the biggest one day point drop in history. However, there is a major difference in point drops and percentage drops. The 777 point drop was a decline of 7%. In October of 1987 the stock market declined 23% in a single day. The anxiety of the average investor increased dramatically with the media’s reporting the biggest point decline ever. While true, it was not representative of past declines. Investment performance is measured in percentages of gain or loss, not points.
Remember it is seldom as bad, or good, as the media tells it. Never forget the media tells to sell. Don’t make rash decisions regarding your investments based on mainstream media hype.
Posted by Jana on
Wednesday, October 29th, 2008 ·
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Of all the service people to stop by, it is the copier people that we now love. We have water people, supplies people, and copier people who, in addition to the mailman, occasionally pop their head in our doors delivering good cheer. But the man I like the most is definitely the copier dude. Whoever thought someone could bring such good cheer to an office. Whether it’s fixing a down machine or bringing education; we love it!
I can now scan right to our server, send things to the document server on the computer, staple, punch, and collate from any machine in the house. It’s amazing what a little time and attention will deliver. (Again, nothing we knew of while with the I KONed you people.) So, enjoy the service, ask questions, and don’t be afraid to keep looking until you find the knowledgeable service that you deserve.
Posted by Jana on
Tuesday, October 21st, 2008 ·
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For over 20 years we’ve been in the same location without problems. That was at least until one day we came to work only to find a brick stepping stone and shattered glass everywhere. Our second story view looking out over the train depot towards the Capitol building also has a glass door at the top of the fire escape. It’s sad to report that those same stairs, intended for good, were used for evil.
Again, after twenty some years of enjoying the view, convenience and location, we were once again shattered to think that someone broke into our little home, stole a laptop, and escaped our little haven at the corner of Rose Hill and Vista.
Fortunately we have a great Chief Compliance Officer keeping us on top of all possible safety nets. Nothing was accessible from the computer as our files were locked up and passwords can only be found intellectually. What a great reminder that all those annoying password rules, office keys, and other security measures are actually a life saver and not a hindrance.
P.S. The thieves were caught too high on drugs to even facilitate the resale of all their accumulated lap-tops.
Posted by Jana on
Tuesday, October 21st, 2008 ·
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The world of networking, especially in Boise, is so very small. I ran into a one time high school buddy while at some networking event. We chatted it up a bit, but I didn’t think much of it. Later-on I got a referral from him for a new life and health insurance client. The referral and her husband were great; they returned phone calls, completed paperwork on time, and were very pleasant to talk to.
Then, about a year or so later, we were once again expanding and looking for new part time help. While out spreading the word Don was approached in a Rotary meeting about someone whose daughter was also looking for a job and had at one time been securities licensed. We followed the lead and who knew that it ended up back at the same girl I once met while helping her and her husband out with their insurance needs. Boise is small, but helping people and seeing circles come around is great.
Posted by Jana on
Tuesday, October 21st, 2008 ·
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We were once given a great referral on a new employee… only to have her taken back again by the same guy who referred her to us. After losing a long time employee to Motherhood, we decide to hire great and not post an ad but to spread the word instead. That’s when a fellow Rotarian of Don’s tipped us off to a great young, capable, and bright lady that they had interviewed. We hired her on the spot and thought to have struck the goldmine.
That gold rush lasted until the same guy who gave us the referral called her back and offered the job that he had previously turned her down for. Unfortunately she followed her dream into the marketing world; but hey, who graduates college with an insurance degree???