When we interview new clients, we ask them what investments they have that they are happiest with and we ask them “What is your biggest financial regret?”

Those two questions help us better understand the person and how they view investing.

One gentleman had a touching story when asked about his biggest financial regret. About 10 years ago his wife was diagnosed with breast cancer. She went through all the advised treatments, but she got worse. Eventually she needed around the clock care, which was very expensive and they ended up having to sell their house. In the end, the cancer got her. In hindsight, the gentleman wishes they had purchased long-term care insurance. It would have paid the expenses and he would have saved his house.

His story is not uncommon. Medical expenses like long-term care are not covered in most cases and for most people. Long-term care insurance is a very good thing to have. However, for people who don’t qualify or who don’t want to pay endless premiums, there are some good alternatives that are new. Many life policies now have riders available that make the death benefit available for the long-term care expenses. In some cases, it is even possible to convert existing polices to the new type of policies. Just ask us about the new ways to plan for the cost of long-term care.

The Sleeping Point
Reprinted with permission from Crash2 – Surviving the Next Great Depression by Stephen E. Covell

A worried investor asked J. P. Morgan this question in the early days of the Depression: “What should I do about my stocks. I can’t sleep nights.”

Morgan replied: “I’d sell down to the sleeping point.”

If you agree with even a small part of this book, your sleeping point should be a good bit different than it was before you turned the first page.

Should you liquidate everything and build a bunker in which to store your Krugerrands? Absolutely not. I do not mean for a moment that investors should enter panic mode and sell off every type of investment. What I do suggest is that you start by taking a close look at where your money is invested to see whether a bit of common sense should be applied. Stock brokers have been selling the idea for years that you can just diversify your portfolio and hold on for the long run. With the changes coming this is just not going to work anymore. The “diversify and hold on” strategy is somewhat like buying several houses on the same street in an attempt to spread out risk from flood damage.

For brokers who still try to convince you that holding a diverse portfolio for the long run is a good strategy, ask this simple question: “Would that have been a good strategy in 1928?” It is a good bit of fun to listen to the responses. Some will answer that the market still comes out ahead in the long run. If you read the chapter in this book dealing with Crash 1, you will know the perfect response. You will have learned that it took 25 years for the market to come back to the level it had at the beginning of 1929. Would anyone want to wait 25 years just to break even?

Secular Bear Markets

In the more than 100 years that the Dow has been tracked, there have been a handful of what are known as Secular Bear Markets.

I am convinced we are in one now.

A market trend is a putative tendency of a financial market to move in a particular direction over time. These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames. -Wikipedia

I suspected we were in a Secular Bear Market (let’s call it a SBM from now on). Now I’m convinced we’re in one. Here’s why: the market cratered Thursday after a strong drop on Wednesday. On Friday, where were the bargain hunters? They weren’t there. The market floundered around from a little up to a little down and ended up a few points up. Normally in volatile markets, bargain hunters who are convinced the drop is short-term start buying up stocks at clearance table prices.

By the way, the best way to remember whether a bear market or a bull market is the one you should be rooting for, keep in mind that it is the bear that eats you.

SBMs tend to last a very long period of time. If you look at the chart, the period after the Depression lasted 25 years and the period ending in 1984 lasted 18 years. We then had an unprecedented period of market growth where it was almost impossible to not make money. Remember day traders? Anybody with a computer could make money picking stocks for short-term movement -the movement was always up. These people all lost their shirts when the inevitable market correction took place. Is what we are seeing now nothing more than a “correction”?

The SBM after the 1929 Crash was partially the result of the policies of Roosevelt in demonizing business, raising taxes and regulating every facet of life. Sound familiar?

So, we not only have the specter of a Secular Bear Market because of market movement and because it is time for one, we will have an aggravated SBM because the current group of politicians do not have a lick of common sense.

You haven’t done so, this might be a good time to review the Prosperity Wheel, which talks about the risks of traditional investing.

We had a gentleman come in who never dreamed in a million years that he would find himself in the pickle he described to us.

He was in the insurance business and was successful enough to get a free cruise from one of the companies he represented. Because he was in the business, he was fully insured on his life and for every kind of liability, including a huge umbrella policy.

While on the cruise, he got into a conversation with a young women at dinner. He made a comment that the woman apparently found offensive.  Nobody considered the comment to be especially off base, not even the client’s wife who was sitting right next to him when the comment was made. No further thought was given to the event.

However, the woman filed a complaint with the company alleging sexual harassment. Our client was flabbergasted, as was our client’s wife. “Where is this coming from?” they wondered.

Once we heard the story, we first had to give our client the bad news that all of his insurance would be no help. Liability insurance does not normally cover “torts” -which are deliberate acts that harm others, as opposed to accidents. So, if you hit someone in a fight, or if you are sued for slander, those sorts of things are not covered by insurance.

Our client doubts that she will follow up with a law suit, but this was a reality check for him. He is quite wealthy and this made him realize that he is an easy target. Instead of waiting to see if she will sue, or instead of waiting for some other incident, it was decided to re-position some of his assets into creditor-proof investments. In his case, since both he and his wife are in the insurance business, it was easy to convince him to choose some tax-deferred annuities since his wife could take the commission on the sales. In the state where the client lives, all annuities are exempt from creditors, even (with the right circumstances) transfers done knowing there is a potential creditor -like the young (and overly sensitive) woman.