Bernie Sanders’s “ridiculous” proposals

U.S. Senator Bernie Sanders of Vermont

U.S. Senator Bernie Sanders of Vermont (Photo credit: Wikipedia)

I can hardly open the Wall Street Journal without seeing an article about why Bernie Sanders’ proposals won’t work, but I’m not buying it. Sure, any sort of change at all is going to have some unintended consequences. But that’s been true of just about every single governmental policy in the last, oh, 100 years or so. Of course, some people will benefit more than others—just as they did under the Republican presidencies. But, like Bernie, I’d like to see the greatest good for the greatest number, and I’d most like to see policies that will benefit the hard working middle class, tamp down extreme disparities in wealth, and provide basic social supports so that no one lacks basic healthcare, housing, nutrition, and the opportunity for an education.

I like government to stay out of my hair as much as the next person. Hey, I homeschooled my kid for 10 years while paying a pretty big property tax bill to support the local schools. I’ve yet to meet the person that actually enjoys paying taxes. But, as a financial planner, I ask what return I’m going to get on my investment—is there benefit for my (many) bucks?

Healthcare

Really, I have to laugh when I listen to the Republicans pounding their chests about how long you’ll have to wait for a doctor’s appointment if we get Bernie’s single payer national health program. In January I decided to find a new internist, since my previous one has decided that he can’t make a living billing even the best health insurance around. Of course, maybe if he downsized his suite of offices on Lake Shore Drive and didn’t have 4 receptionists chatting to each other at the front desk(who, by the way, NEVER answer the phone), he might be able to eke out a living of, oh I don’t know, a pitiful $300k or so. I had to call 5 recommended internists before I found 1 who was even taking new patients, and then I had to carefully check just WHAT Blue Cross insurance they would take (i.e. not many from the Health.gov marketplace). And then, I have to wait 4 months (mid-April) to get in to see her—and I have no idea whether I’ll even like her, so theoretically if I interviewed 3 practitioners, it could take the better part of a year of waiting to see a doctor for actual examination. For a dermatologist I saw in October, I was told to go home immediately and schedule my 6 month checkup or there wouldn’t be anything left. I can’t imagine that it COULD get all that much worse.

What about the charge that your taxes will skyrocket? Right now I pay $10,144.20/year for a plan that covers me and my daughter, with a $3,500 deductible. It’s an old policy—yes, I liked my insurance and just as President Obama promised, I got to keep it. I haven’t seen any proposal at all that suggests that your taxes will go up by $10,000 a year if we get a single payer. Yes, if you’re employed by a company that pays most of the health care cost, you probably don’t see that kind of bill, but you’re paying it nonetheless—in lower earnings. Unless, of course, companies find a way to offload a cost without any salary compensation. Oh wait, that’s already happened to your retirement. Remember that antique thingy that your parents had—a pension?

I’d happily pay more taxes for better health care for all—prenatal care, lead screening, diabetes prevention, you name it. The comment about how it will never work? It DOES work in every other Western nation, all of whom have better health outcomes than we do. Yeah, maybe hospitals and insurance companies would make less. But something tells me they’d find a way to survive—perhaps by providing the same healthgap insurance they currently provide to Medicare users. Maybe it would create more elite stratification—it all depends on how high the basic bar is set. Once it’s a universal, there’s a limit on how much extra most people will pay. It seems to me that in Europe people still become doctors, and in interviews I’ve heard even they all talk about the better quality of life.

Incremental change is easier than radical change and usually works better. Obamacare was that incremental change. Now, let’s make another one.

Public education for everyone

Some bonehead Republican (I think it was Trump but he says so much crap I lose track) declared that a free university system would make us like Europe, and foreign students all want to come to the U.S. for our superior education. Simply not true. It’s true there are a lot of foreign students on U.S. college campuses for at least two reasons I can see: colleges heavily promote it because these students generally pay full freight, and they’re coming from countries where the university system is generally rigid or substandard (India and China) or where the system offers little potential or is in political turmoil (especially women from Middle Eastern countries). European students are absolutely NOT in evidence as undergrads—in fact, the traffic is the other way since even the best Euro universities are cheaper and easier to get into than the U.S. equivalent. Sure, graduate students come from all over (but again, not predominantly Europeans) but plenty of traffic goes east across the pond, too. There’d probably be more if most U.S. students weren’t so completely incompetent in and terrified of functioning in another language.

Would this put private colleges out of business? Probably, yes and no. The financially weaker ones might have to recast their mission to actually offer programs that would be worth paying for, and a lot of them would fall by the wayside. Oh wait, that’s already happening. The elite schools? Not so much—over half the attendees are already paying full freight, and an awful lot of parents around here would pay absolutely anything to get their kid into those places (you know who you are). I don’t think that will change, and most of these places could already fill their freshman classes three times over with qualified applicants. I don’t think they’ll see empty seats if their application ratio goes from 10 for every 1 accepted to 3 for every 1 accepted. And maybe an expanded public system will stop the horrendous college arms race we’re currently experiencing, and the horrible impact on the mental health of college students.

Right now, its college or you’re a failure. Maybe some changes would produce quality technical and trade education as a viable and respectable option. Pinch me, I’m in Europe.

Social Security

This is actually a Hilary Clinton proposal—that Social Security be redesigned so that it doesn’t penalize women who have stayed home with children. Now there’s a family friendly proposal. Republicans will certainly continue braying that Social Security was never designed to completely fund your retirement. Right. Because when Social Security was designed, people had PENSIONS. Social Security should be redesigned to offer people a respectable retirement consistent with what they earned in their working life. It’s just ridiculous that contributions cease at $118,500 in income. And why not tax people with very high retirement incomes? If it would provide a decent life for the elderly (which we all hope to be someday)—I’ll pay. The societal good seems just compelling to me—and like all income increases, it would raise consumer demand (more money to spend) and not necessarily discourage savings, since everyone would want to live above the minimum. People who save now would continue to save, and people who save very little (the vast majority) would not endure a desperate old age. Our system right now punishes stay at home parents, people who’ve dedicated themselves to socially useful lower paid work, people who’ve gotten ill or taken care of their own elderly parents or got a late in life divorce. Don’t even get me started on the need for long term care—it’s going to take the tragedy baby-boomers are surely facing to confront society with that disaster.

Financial transaction tax

Whew, this one hurts. Bernie is proposing a .5% tax on every $1,000 transacted according to WSJ this morning. That’s pretty high for individuals, but maybe it will return some sanity and thoughtfulness to the process of investing, and slow down the rapid fire high stakes trading that individuals cannot possibly compete with. Does anyone seriously think that it will topple our markets, the strongest in the world? I would like to see some protection for individual investors, but my guess is that if this ever passes it’s going to be a lot more complex than what is currently proposed.

However the election resolves, I think we need to read the handwriting on the wall. Bernie’s policies are overwhelmingly popular with the millennials. Unlike the baby boomers who had no real political agenda except ending the Vietnam War (and then taking up the culture of hedonism), millennials seem to have real political beliefs and economic issues that they intend to fight for. As they get older and move into positions of control, I think we will all have to acknowledge that the times, they are a changin’.

 

How bad has Obama been for business?

That sound you hear is corporations (especially in the healthcare industry) laughing all the way to the bank. Craig Israelsen had a fascinating article in a recent issue of Financial Planning Magazine, and the results are quite startling. As Israelsen correctly points out, presidents are happy to deny responsibility when the news is bad, and take unearned credit when news is good, but I’d like to suggest that any POTUS who has eight years (two terms) has to accept some blame and credit, especially after several years in office. Israelsen graphicBased on numbers, I’d say Clinton and Obama have been the most investor-friendly in recent memory, and investors (and business), should be lining up to thank them. And when did facts and numbers count in politics? (If you’re interested in the full article, drop me a line and I’ll send it along.

Let’s look at another common theme from a certain blowhard American political party—that the Affordable Care Act has been a disaster for the healthcare industry. Notice I said industry; whether it has improved the lives of individual consumers is another story. According to Morningstar’s charts, $10,000 invested on March 23rd, 2010 (the day President Obama signed the Affordable Care Act into law) would be worth $27,377.99 today. A 173% increase in less than 6 years doesn’t exactly seem unprofitable to me. Had you been smart enough to focus on biotechnology—you know, not be dragged down by all those terrible companies that make up any index—your $10,000 would be worth nearer $40,000 today. ($40,645 using FBIOX as an example—no investment recommendation intended, example only). Biotech is one of the most risky areas of the healthcare scene, but apparently Obamacare hasn’t put all that much of a damper on risky, venturesome research and innovation, if a better than 300% return is any indicator.

Wouldn’t it be nice if political opinions had some basis in facts? I hope I’ve just given you some.

Should you invest in stocks?

Theintelligentinvestor.jpgThis past weekend I went to an investor fair sponsored by the Chicago North and West Chapters of BetterInvesting. These are the people who used to be known as the National Association of Investment Clubs. I write a quarterly column—Fund in Focus­­—for the magazine, and the occasional cover story. But like so many relationships these days, mine is virtual so it was nice to meet some of my fellow authors (and they are nearly all fellows, which is a bit disappointing).

They tend to be an engaged and savvy group. Maybe this is the product of self selection, because if you’re disinclined to put in the work a stock study requires, or regularly lose money, you probably wouldn’t stay with a stock investment group. But the people I met had a pretty good understanding of risk, had seen some investments lose a lot (and gain a lot), and generally asked thoughtful questions. No one seriously supported day trading, told me about the latest greatest penny stock, or was wearing a tin foil hat. I was heartened to see more than a few young people.

Buying individual stocks is not something I recommend to my clients. I strongly believe that the essence of investment planning is establishing and maintaining a core portfolio allocated among a wide variety of asset classes (e.g., large cap, international, natural resources, etc.). Depending on how much money you have to invest, how risk tolerant you are, and what options are offered in your accounts (and 401ks may be quite limited), you might choose a whole clutch of funds, or one target fund, or something in between. This is where most of your, and my, investments should be because most of us don’t have time to monitor investments day to day (and probably shouldn’t) and because it offers you a prudent combination of risk and reward. You’re never going to make 300% in a year or two on mutual funds, but you’re not going to lose every red cent, either. You can do both, or either, investing in individual shares of stock.

What I love about BetterInvesting and all the information, analysis tools, and opportunity to benefit by others’ thoughtful opinions is that there’s some basis for making judgments. Most people pick stocks because their brother-in-law told them about it, their kid likes the product, or their husband sat next to an executive of the company on a plane (which is why you cannot mention the name Ciena to me).  Or they’re told “buy what you know” or (shame on you Peter Lynch) go sit in a mall and watch what stores get the traffic. Which is a good way to end up with a whole portfolio of consumer cyclical stocks. And no, that’s not balanced or…wait, I’m foaming at the mouth.

I have seen the occasional client who thoughtfully bought and sold individual equities, and done quite well. But like the owners of apartment buildings, they’re often tired of the stress and want to reduce at least some holdings. Many people have inherited stocks, or fallen in love with a company, or are hoping to get back even on a loser, or reluctant to sell a winner because it might go higher. So BetterInvesting methods really shine not only in stock picking, but if you actually learn the methodology, in identifying when you should sell.

Which investor should you be? Probably, you should be what Benjamin Graham (Warren Buffett’s mentor) described as the defensive investor—seeking to maintain and grow a portfolio at a prudent rate, getting return while balancing risk. After all, most of us have enough trouble wading through and understanding the offerings in our 401k, although now at last the reasonably diversified target date funds are becoming the default.

But Graham also describes another kind of investor—the enterprising investor (which Warren Buffett surely is). As Graham so concisely puts it, The rate of return sought should be dependent, rather, on the amount of intelligent effort the investor is willing and able to bring to bear on his [sic] task. If you’re willing to put the time into study and monitoring, and have the intestinal fortitude to ride out terrible markets and make courageous choices, you might actually be that 2 or 3 in 100 who should consider some enterprising investing.

I like to divide portfolios (including mine) into “core” (asset allocated mutual funds) and “casino”—or maybe there’s a nicer name like adventure or enterprise. Keep that casino portion small (maybe 10%) of your total holdings, and ask yourself these questions:

  1. Could I stand it if I lost 50% of my investment’s worth? 100%?
  2. Would I sell everything in a bad market, hold on, or buy more? (Buy more is what an enterprising investor would do. A defensive investor would hold on.)
  3. Have I read a good core of basic books on investing? (Malkiel, Graham, Bernstein)
  4. Do I have rules for myself on what constitutes an acceptable stock to purchase, hold, and when to sell?
  5. Do I have time to continue to study, research, and monitor the portfolio?
  6. Can I trust myself to follow up regularly over years?
  7. Do I understand what conditions might make my investment go up or down? Buffett famously said he did not understand tech companies and so avoided the bubble in that sector by not buying them in the first place.
  8. Do I have a way to discuss ideas with other thoughtful investors (and I don’t mean a bunch of internet trolls or Jim Cramer)? Besides BetterInvesting and investment clubs, it might be worth checking out the American Association of Individual Investors (no personal experience) and groups such as the Bogleheads.
  9. Do I need this money in the next 5 years?
  10. Am I desperate for money? STOP, that was a trick! If you are, stock speculation is a sure way to make yourself even more desperate.

I don’t advise my clients on individual stocks, except to recommend they diversify into mutual funds if their individual stocks constitute too much of their total investments. I think it’s an art and a very personal interpretation, and ultimately you know the success of your judgment by your own results. Even in an investment club with people looking at the same data study, the opinions on worth will vary greatly. BetterInvesting has said for years that for any five stocks you pick after careful study and evaluation, three will do about what you expect, one will do far better, and one will tank. That’s been about right in my experience, but it can be a pretty nerve wracking ride. You always remember the ones that tanked, but you only talk about the ones that did well.

Only fall in love with things that love you back.