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The Kids Birthday Party Hustle
Issue #518A, April 18, 2018

A Pension Question: Part II of II
Issue #518, April 16, 2018

A Physician is an Executive
Issue #517A, April 11, 2018

A Pension Question: Part I of II
Issue #517, April 09, 2018

Is the Correction Over?
Issue #516A, April 05, 2018

Used Car Dealers, Student Loans, the Chinese, and Uncle George’s Rule
Issue #516, April 02, 2018

Starter Homes
Issue #515, March 26, 2018

Redecorating: Beware!
Issue #514, March 19, 2018

NASDAQ Closes at Record High
Issue #513, March 12, 2018

A 40% Chance
Issue #512, March 05, 2018

Several Things
Issue #511, February 27, 2018

Human Capital, Education and Wealth
Issue #510, February 19, 2018

Another Stock Market Update
Issue #509A, February 18, 2018

Some Thoughts on Savings
Issue #509, February 12, 2018

A Stock Market Upfate
Issue #508S, February 10, 2018

Who Can You Trust? Part II of II
Issue #508, February 05, 2018

The Christmas Decoration Pre-worn Jeans Hustle
Issue #Interim Bulletin #507A, February 03, 2018

2018 Outlook for Financial Markets
Issue #507, January 29, 2018

Who Can You Trust? Part I of II
Issue #506, January 22, 2018

Life Insurance Settlements
Issue #505, January 15, 2018

Commodities and Buying the Breakout
Issue #504, January 08, 2018

Buffett Wins His Bet
Issue #503A, January 04, 2018

Practice Real Estate and Free Agency
Issue #503, January 01, 2018

Outlook for 2018: Part III: Stocks and Bonds
Issue #502, December 25, 2017

My Outlook for 2018: Part Ii: Precious Metals
Issue #501A, December 21, 2017

Outlook for 2018: Hard Assets: Part I of III
Issue #501, December 18, 2017

More Thoughts on Bitcoin
Issue #500A, December 14, 2017

Fees and Good Relations with Bankers
Issue #500, December 11, 2017

Salvator Mundi
Issue #499A, December 07, 2017

Should You Rent or Own a Home?
Issue #499, December 04, 2017

A Gift Subscription
Issue #Interim Bulletin #498A, December 02, 2017

Stocks vs Real Estate: Asset Allocation: Part II of II
Issue #498, November 27, 2017

When Good Enough is Fine
Issue #497A, November 22, 2017

Stocks vs Real Estate: Asset Allocation. Part I of II
Issue #497, November 20, 2017

The Saudi Arrests and the Perils of Foreign Investing
Issue #496, November 13, 2017

Gambling and Las Vegas
Issue #495, November 06, 2017

Some Tips on Auto Insurance
Issue #494, October 31, 2017

Bitcoin and the Digital (Crypto) Currencies
Issue #493, October 23, 2017

The Coming Bear Market: Part II How to Prepare
Issue #492, October 16, 2017

Some Observations on Cemeteries
Issue #Interim Bulletin #491A, October 12, 2017

The Coming Bear Market: Part I: The Myth of Buy and Hold Forever
Issue #491, October 09, 2017

The Market makes New Highs
Issue #490, October 02, 2017

The Importance of a New High
Issue #489, September 25, 2017

A Little Insurance: Wealth, War and Wisdom
Issue #488, September 18, 2017

Some Observations
Issue #487, September 11, 2017

How to be Successful in Your Career
Issue #486A, September 07, 2017

How NOT to Buy a Home
Issue #486, September 04, 2017

This Week in the Market
Issue #485, August 28, 2017

Is the “Trump Bump” Running Out of Gas?
Issue #484, August 21, 2017

Gold is on the Move
Issue #483, August 14, 2017

The Importance of Estimation
Issue #482, August 07, 2017

Buying Art and Collecting: Part II of II
Issue #481, July 31, 2017

Buying Art and Collecting in General, Part I of II
Issue #480, July 24, 2017

Physicians need to be More Forceful: Follow-up
Issue #479, July 17, 2017

Physicians need to be More Forceful
Issue #478, July 10, 2017

Your First “Real” Investment
Issue #477, July 03, 2017

Leasing a Watch: Don’t
Issue #476, June 26, 2017

The Importance of Your Children having a Job
Issue #475, June 16, 2017

The Problem with Medical Student Debt is—the Med Schools
Issue #474, June 12, 2017

Critters and Varmints in your Home and Yard
Issue #473A, June 07, 2017

Leveraged ETFs
Issue #472, May 29, 2017

Leasing a Vehicle: Don’t!
Issue #471, May 22, 2017

Issue #470, May 15, 2017

More on Buying Jewelry
Issue #469, May 08, 2017

Buying Jewelry: Gold, Diamonds and Pearls
Issue #468, April 30, 2017

Thomas Sowell: Part III of III
Issue #467, April 24, 2017

Thomas Sowell: Pat II of III
Issue #466, April 17, 2017

Live Close to Where You Work
Issue #465, April 10, 2017

Medtronic in Hospital Management
Issue #Interim Bulletin #464A, April 07, 2017

Thomas Sowell: Part I of II
Issue #464, April 03, 2017

A Political Contribution a an Investment: Part II of II
Issue #463, March 27, 2017

A Political Contribution as an Investment: Part I of II
Issue #462, March 20, 2017

Buffett Selling Vacation Home
Issue #461, March 13, 2017

Advanced Placement (AP) ourses
Issue #460, March 06, 2017

The Importance of a Credit History
Issue #459A, March 02, 2017

A Credit Card Scam
Issue #459, February 27, 2017

The Electronic Health Reord
Issue #458, February 20, 2017

Issue #457, February 13, 2017

Platinum and Palladium
Issue #456, February 06, 2017

Economic Outlook for 2017: Part II of II
Issue #455A, February 02, 2017

Economic Outlook for 2017: Part I of II
Issue #455, January 30, 2017

A Story From Vegas
Issue #454A, January 25, 2017

Land Donation Deals and the IRS
Issue #454, January 23, 2017

The Theory of Gambler’s Ruin
Issue #453, January 16, 2017

Student Loans: But Wait, There’s More!
Issue #452, January 13, 2017

A Second Home
Issue #Interim Bulletin #451A, January 04, 2017

The Consumer Confidence Index
Issue #451, January 02, 2017

Social Security
Issue #450, December 26, 2016

My Outlook for 2017: Part II of II
Issue #449, December 19, 2016

My Outlook for 2017: The Market
Issue #448, December 12, 2016

Medicine in 20 Years
Issue #447, December 05, 2016

Higher Interest Rates
Issue #446, November 28, 2016

Trump and the Markets: The Bad and Ugly
Issue #445A, November 23, 2016

Trump and the Markets: The Good
Issue #445, November 21, 2016

Negative Trends: The Suits aren’t Makin’ Steel
Issue #444, November 16, 2016

The New DOJ Fiduciary Rule
Issue #443, November 07, 2016

Barron’s Conference, Part IV of IV
Issue #442, October 31, 2016

Barron’s Conference, Part III of IV
Issue #Interim Bulletin #441A, October 26, 2016

Barron’s Conference, Part II of IV
Issue #441, October 24, 2016

Barron’s Conference, Part I of IV
Issue #440, October 20, 2016


By Robert M. Doroghazi, M.D., F.A.C.C.

The Importance of Buying Life Insurance when you are Young

Issue #391, November 09, 2015

    Please be sure to read this if you are in the 25-40 age group.
    I feel that people are often over-insured, and if you get all the advice on your insurance needs from the agent, you are sure to be.
    The main issue when buying life insurance is: who relies on you? What are your obligations? Some people don’t need life insurance. The pain from the loss of a child is unimaginable, but children don’t need life insurance. I’m 64, single, with no debts, and my boys are self-supporting. I have no life insurance because no one relies on me.
    Say you are an unmarried senior medical student. You almost certainly have debt, and presuming you didn’t coerce your patents into co-signing the note, you have no obligations. But fast-forward 10 years. You will be in practice and own a home, with a mortgage hopefully no more than about $250K. You still have student debt of $100K—and—two children with another on the way, and maybe even more in the future. Should you die you want your spouse and children to live a reasonable quality life and obtain a good education, so about $1-1.5M of coverage would be desirable.
    What makes me write this now is hearing about 2 responsible professional men in their 30s. Both had a reasonable amount of term life insurance, knew they needed more, but hadn’t yet pulled the trigger to start the process. One had a coronary event and the other a neurologic event. Now they both clearly need more insurance, and it will be much, much more expensive (like 5X or even more expensive).
    Here is the point of this newsletter: anticipate your needs and buy when you are young, when rates are cheap. Say you are a 28 year old non-smoking male Resident in good health and you are contemplating marriage. A $250K term life insurance policy will be about $350 per year. A $1M policy will be about $1,250 per year. Buy a $1M policy! It seems like overkill, and the $1K per year difference in premiums is a fair amount for a Resident or Fellow, but in 10 years you will be glad you have the coverage.
    Three things encourage this strategy:
    1) rates on term insurance for someone in their 20s are dirt cheap. Premiums go up on the 10 years (and sometimes on the 5 years), so you must do this before age 30.
    2) Be sure the premiums are fixed for the term of the policy.
    3) You can always drop the insurance later. If you find out you don’t need all of the coverage, just stop paying on the policy and let it lapse. Or, take a 30-year policy for $750K and a $250K policy for 20 years.
    As a general rule, you want to plan your finances (mortgage paid off, no debts, and children self-supporting) so you will need no life insurance by age 60. Premiums go up significantly at that time because the risk of death increases pari-passu (means to proceed at the same rate).
    Two points: Don’t buy so much insurance that your family would live in a luxurious life style you couldn’t otherwise afford. You don’t want your spouse to conclude they would be far better off if you were gone. After all, things do happen.
    Term should make up 98-99% of your life insurance needs. Purchase whole life only when recommended by an estate attorney, such as to fund a buy-sell agreement, or as part of a charitable gift.
    This situation is a great example of “asymmetry” as discussed by Talib in Anti-fragility (reviewed in Issue #262, 5/20/13). You want to avoid situations where the losses could be huge, and seek out situations such as this, where there could be a huge payoff at a small expense.
    If you are 38 or 39 and need more insurance, do it now, before you turn 40.
    If you are frustrated by the Electronic Health Record, follow the link below.
    At the Barron’s conference, William Priest commented on “block chain”. He feels it will revolutionize the back office operations of every financial company in the world. From Wikipedia: “block chain is a distributed data base that maintains a continuously growing list of data records that are hardened against tampering and revision, even by operators of the data store’s nodes. The most widely known application is the public ledger of transactions for cryptocurrencies used in Bitcoin. The record is enforced cryptographically and hosted on machines running the software”.
    RMD comment: I originally had this in last week’s letter, but moved it to this week for space. The lead story in this week’s Economist (10/31-11/6, 2015) is “How the technology behind bitcoin could change the world”. This clearly bears watching.
    Priest made a comment two years ago that I have heard nowhere else, namely, that in 1958, bond yields surpassed stock dividends for good.
    RMD comment: prior to that time, bonds were considered completely safe, while stocks had to pay a higher dividend to compensate for the perceived risk. By the late 50s the stock and bond market appropriately sensed the coming (and continuing) inflation, which erodes the values of bonds.
    This is from a man I met at the Barron’s conference about the editorial Dr. Joseph Alpert and I had in the September 22, 2014 issue of Barron’s about the importance of college grads having work experience in the real world.
    “My father is a successful attorney, so (fortunately) money was never a major issue in our home. That said, he insisted I work every summer on construction or in a factory. It did teach me how most people live, and was also a real kick in the rear to get my education”.
    RMD comment: to quote Grandma Nagy. “Bobby, hard work is good for you. It never killed anybody”.
    A recent Forbes gave “Self-Made” rankings to the richest people in the US. Heiress whose grandfather started the business of which she has no current active role: 1. George Soros, a Hungarian Jew who escaped the Nazis, and Thomas Peterffy, another Hungarian, who arrived in the US at age 21 with no money, couldn’t speak English, and went on to found Interactive Brokers: 10. A 5 would be someone who came from some money and position, or their parents started the business, but they built their fortune on their own. Someone like Bill Gates, who came from a humble background, with no particular advantages, but no gross disadvantages, and built everything on their own: 8.
    RMD comment: where would you rate yourself? Be honest.
    Casinos adjust the odds on slot machines. The usual payout ratio is about 90-95% (Remember: the casino is in business because the casino always wins). The slots next to the door have a higher payout to attract customers into the casino. When a casino first opens, the payout can be more than 100% to show their slots are hot.
    A man told me that he was at a casino in St. Louis on opening day. Some guy hit the slots for $35,000. On such large payouts, the casino 1) withholds Missouri state taxes of 4%, and 2) does a background check to see if the winner owes back taxes, child support, etc. This guy had outstanding warrants, and left the casino in handcuffs!
    RMD comment: in seconds, this guy went from the thrill of victory to the agony of defeat. The casino put the money in escrow, because it was a legitimate win.
    A long-time Canadian subscriber told me that he has always been hesitant to sign a contract with an arbitration clause, because he feels the odds are stacked for the big business over the little guy.
    This is a summary of what an attorney told me on the subject.
    “Arbitration clauses aren’t always bad. In a situation involving two businesses or a group of doctors it can be advantageous because it keeps litigation costs down and arbitration proceedings are kept private. Also, you pick the arbiter, so it is someone you like, as compared to a random jury of 12 people.
    Arbitration clauses in consumer contracts are meant to prevent litigation and class-action suits. The Supreme Court is very pro-arbitration. There are some times you can’t get away from arbitration clauses (credit card and bank account agreements). Others, such as a rental contract, you can often just cross out and the other person won’t notice.
    Lastly, this should serve as a reminder of a more important principle: you are expected to read what you sign. It is a basic rule of law: you can’t claim ignorance”. 

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