HELPING PHYSICIANS ATTAIN FINANCIAL SECURITY
By Robert M. Doroghazi, M.D., F.A.C.C.
Taking Over the Finances of an Aging Parent
My dad died in 1987. My mom, now 92, still lives independently in the 900 sq. ft. home purchased in 1956 for $14,950. I remember shaking my father’s hand when he paid off the mortgage in 1959. She is in good physical health and remains sharp mentally. (She received two double promotions in school and graduated salutatorian of her high school class). She wants to, and we want her to, continue to line independently, but it’s getting to be more of a struggle, so to help out, I now have her Power of Attorney for property, for her health care, and for her trust.
This is not going to be a discussion of the legal ins and outs of trust or Power(s) of Attorney, etc. Rather, it will be a practical discussion of the issues I encountered in taking on this responsibility. Since I’m sure some of you have already faced this situation, I would greatly appreciate any suggestions and recommendations.
Some background: My parents both graduated high school in 1936. The Great Depression led them to be terrified of the stock market. As a result, all of their savings were in vehicles that offered instant access, either a passbook account or US Savings Bonds taken directly from my dad’s paycheck at General Steel (the Payroll Savings Plan). Finally, in the 1970s, I talked my dad into buying a CD. You never saw such a happy man when he brought home a CD paying 6% interest. Our family also never discussed what anyone had in the bank. That was considered private.
Back to today. When I opened the safe deposit box, there were 19 $100 Series E US Savings Bonds in consecutive months from September, 1971, until 1973 when General Steel (the Commonwealth) closed and my dad lost his job of 37 years.
Series E Savings Bonds mature in 30 years, so for almost 10 years these bonds have been collecting dust but no interest. I took the bonds to the very nice lady who was helping me with everything to be cashed out. Banks do not redeem bonds that are past maturity date; they must be sent directly to the Federal Reserve. The lady downloaded the forms, filled them out for me, I signed them, and they were submitted that day.
Point #1: I like to know at least several people at every place I bank. Whenever you need anything out of the ordinary, it is much easier to get things done.
Aside from the Savings Bonds and money in the check account, all of my mom’s wealth is in CDs. At one bank, she was significantly over the old FDIC limit of $100K. This is a publically-traded regional/super regional bank whose stock currently trades at about 3.5. If it had gone down in the Lehman crash of 2008, my mom could have lost almost a quarter of her wealth.
I have already taken steps to make sure my mom’s money is safe. She is under the FDIC limit, and I monitor the price of the bank stock closely.
My suggestion: if you have a parent or grandparent in this situation, especially if they do not have much experience in handling financial matters, it is probably better to ask if you can help a little earlier rather than a little later. Fortunately, nothing bad happened (although if that one bank had gone down, it could have been a disaster). Likewise, there is no doubt that if we had intervened a sooner, her money would have been safer and put to more productive use.
RMD
The man rubs his piggy bank, and a genie, by coincidence named Jeannie, appears.
“It’s time for you to tell me what stock to buy for the next year. There are three things I’m looking for in my dream stock”.
“This year I’ll allow you five criteria. You’ve been a pretty good boy and I’m in a good mood because the Cardinals are in the NLCS”.
“Thanks. I wish for a stock that:
1) Has out-performed Apple over the last 10 years.
2) Pays a monster dividend.
3) Trades on the New York Stock Exchange.
4) Isn’t followed by a single analyst, and
5) Is in a sector Barron’s recently gave a favorable review”.
“Your wish is my command. Terra Nitrogen (TNH).
RMD comment: I’ve mentioned TNH before (see chart, next page). They are a LP, so pay out most of their profits as a dividend, now about 7.5%. Barron’s recently (10/10/11) made positive comments on the long-term prospects of the agricultural sector, and mentioned TNH’s parent CF Industries (CF), but not TNH directly.
The bid/ask spread on TNH is often more than a point, so you must put in a limit order or you will get clipped by the sharpies.
Note: I currently do not own TNH, but have before, and may again.
We were in Boston this last weekend for the Department of Medicine reunion as part of the 200th anniversary of the Massachusetts General Hospital. On the way to breakfast we walked by the store selling the new Apple iPhone that day. I estimated 80 to 100 people in line; a wide mix of demographics, although no one looked older than 35.
RMD comment: It’s easy to see why AAPL is $422. They’ve got it all.
Barron’s Roundtable member Marc Faber was interviewed on CNBC on 10/11. He said that the US and Europe must have a cataclysm, a purge, before growth can resume. The government’s share of the economy has been increasing. We need a flat tax and less government intervention.
The capital stock of America is not being replaced. The lack of savings in the US is the problem. We need someone to get up and say “Listen you lazy buggers, you have to save more”.
He also thought that tightening global liquidity and troubles in the Eurozone were good for the dollar and bad for assets.
RMD comment: I will attend the Barron’s Art of Successful Investing Conference in Manhattan on Oct.24th and report back. Faber, and Felix Zulauf, are my favorites. Faber’s comments are quite similar to my conclusions in the last series of letters.
Go to http://www.321gold.com and see the piece “La Production d’or 2011” posted on 10/11. World gold production in 2010 was about 2,500 tonnes. China is the largest producer, with Australia second and the US third.
This is what I found really interesting. From 1959 to 2010, gold production increased by a factor of 2.1, while the world population has increased by a factor of 2.2. Thus over the last half-century, we have produced the same amount of gold per inhabitant per year. In 2010, gold production was about 0.36 grams per world inhabitant. The average for the last 100 years has been 0.37 grams per year per world inhabitant. From 1959 to March, 2006 (when the US stopped reporting the number), the money supply, M3, has grown by a factor of 35.
RMD comment: Paper money is printed at the whim of the politician. Gold can only be produced by the sweat of a man’s brow. Every bank bailout, every budget deficit, just further devalues the already-intrinsically-worthless paper money.
“(The country) suddenly floated on this vast flood of liquidity, the perfect conditions for an asset bubble. The resulting property boom, unjustifiable mortgage deals, the enterprises lifted by artificially low borrowing rates, the fraud in banking and brokerage businesses, the sudden enthusiasm to get rich quick”.
2005? 1929? After the Franco-Prussian War of 1870-71, Germany was flush with French reparations money. Austrian Emperor Franz Josef enabled the Austrian State Bank to issue a larger volume of bank notes than previously authorized. The speculation called forth many companies for which the existing capital proved insufficient. The Vienna Stock Market crash in May, 1873 ushered in the first modern global financial crisis. (From Bismarck: A Biography (Steinberg, Oxford U. Press).
RMD comment: This is why you must read history. Nothing is ever different.
Forbes (10/24/11). This summer a 1957 Ferrari 250 Testa Rossa brought a world-record price of $16.4M.
RMD comment: The housing market is dead, unemployment remains high, there are protestors on Wall Street, and the people with the really big bucks are paying record prices for cars. I again recommend you decrease your commitment to government bonds and buy things, hard assets.
This is from a new subscriber:
“Your views are so timely and not the usual generic “buy and hold” advice”
TR, MO
RMD comment: Thank you. That is exactly my intention.
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