With the holidays only weeks away, we hope the November O&A Newsletter arrives in time for you to read it before your house is full of company or you are about to head out the door to be with family and friends elsewhere. We’ve begun this Newsletter with an article on a topic not usually addressed in financial planning publications, that of how the medical community treats aging and dying and why it should matter to us all. We hope that our offer to send you a copy of Atul Gawande’s Being Mortal might open the door for discussions of this vital topic as you visit with people who are important to you in the upcoming months.

What follows are articles on annuities, modifications in client portfolios, and some wisdom from famous investors spanning the past 80 years. As usual, we close with Office Matters.

David W. Otto, Editor



When was the last time that you were so engaged by a book of non-fiction that you couldn’t put it down? That happened to me recently with the new book Being Mortal by Atul Gawande, a surgeon who practices at Brigham and Women’s Hospital in Boston and teaches at Harvard Medical School. Gawande, who writes regularly for the New Yorker, focuses his book on the issues surrounding the last chapter of life, and he begins with the acknowledgement that, naturally, we all are going to die. The author points out, however, that until the last two or three centuries, we lived an average of fewer than 40 years, and it is only in recent decades that so many people are living into their 70s, 80s, and beyond. He is of the distinct belief that we are not doing a good job of shepherding and supporting people in the final years of life, and he is the most critical of the medical profession itself.

In Gawande’s view, the medical field has become the fix-it-up profession for oldsters. As we are more proficient in curing illnesses, or at least learning how to live reasonably full lives with less than perfect health, the focus has been on pushing back the boundaries on “incurable” diseases. In the process we have become less adept and less humane in our ability to manage and support people whose health is unlikely to improve.

It was not primarily Gawande’s work as a surgeon, however, that brought him to this point of understanding, but rather the deaths of three members of his family, each of whom had quite different experiences in the final years of their lives.

His grandfather had an extraordinarily long and atypically happy old age, dying at age 110 in a small village in India, surrounded by family members who cared for him. His was a death no longer typical in the Western world, but more common in years past when people lived shorter and more local lives. Those few who made it to old age were regarded as wise and held in esteem. They also normally lived with family, often in the family home, inhabited by successive generations. While all was not idyllic in such situations, which was also true of Gawande’s grandfather, (when he was well over age 100 he had a fight with a son, who also lived in the house, and got so mad he moved out for two months to live with another relative), his was the kind of empowered aging to which most of us aspire. But few people today can depend on that scenario at the end of their lives.

In another death which Gawande describes, his wife’s grandmother went through a much more common, not to say awful, process. She had spent her life as a self-sufficient New Englander but began to lose more and more of her abilities. She was “not safe to live alone, not safe to drive, not safe to manage her own finances – she was [eventually] not safe to live at all, really, yet condemned to live on.” Gawande shows how difficult it can be to find a balance between a sterile, safe, and seemingly meaningless life that no one enjoys on the one hand and, alternatively, living with limitations while continuing to find satisfaction in life. The grandmother eventually moved to her own apartment in a CCRC (Continuing Care Retirement Community), but did not like it from the first day and it was not good for her. After several falls, she was moved to the nursing home part of the facility. By that time she had lost “any meaningful resemblance to what she would call living.” A few months later she died. As medical science develops more treatments for aging conditions, the grandmother’s situation is likely to become increasingly typical unless we radically change our approach. On that matter, Gawande has a lot of ideas, and documents some of the more creative projects that are being tried in the U.S.

The third person included as a central character in the book is Dr. Gawande’s own father. “In his father’s case, it was disease, not age, which ultimately forced a careful consideration of the meanings of ‘life.’” Dr. Gawande’s father was also a surgeon and continued operating into his 70s when a malignant, inoperable tumor formed on his spine. “His surgeon’s hands were the first to go.” Gawande and his father had always been close and when his father was diagnosed with the tumor, the son was better prepared to deal with his father in a more humane manner. Although medication, which was the option his father chose rather than a recommendation for surgery, radiation treatment, and chemotherapy, allowed him to work for many more months, when his father could no longer practice medicine, he functioned pretty well for another year before he was at risk of losing the use of his limbs as a result of the tumor. The elder Dr. Gawande, with the vital help of the author as well as one other particularly sensitive doctor, was able to negotiate a life that continued to hold meaning until the very end. That was his clear goal; he was not focused on simply keeping his body alive as long as possible. Not surprisingly, as the book demonstrates with many real-life stories of people whom Atul Gawande met as he got to know people who were aged or had debilitating medical conditions, this focus often had the effect of actually keeping them alive longer than would have been likely with aggressive treatments. That was also true for his father.

A review of this book appeared in the NYTimes on October 6, 2014. It was written by another physician, Abigail Zuger, who has thought clearly about some of these same issues and brings an enlightened perspective to her review. She suggests, only partly in jest, that we should not allow members of the medical profession to provide services to older patients until those doctors reach age 50. The reason? Younger physicians have only one orientation, which is to be specialists in preserving life, whatever the cost, both financial or quality of life. Being Mortal is a book about the necessity for the medical profession, and all of us, to look closely at these issues, according to Zuger.

Why does this article appears in a financial planning newsletter? We at O&A are regularly involved with financial issues and aging. It is clear that there is a need for strong voices helping people to accept aging and the limitations that come with it in order to find ways to live as fully as possible.

The O&A staff seek to insure that clients will not run out of money before they die. But we also want our clients to consider what their lives have meant and how they want to be cared for at the end of life. What can you do to make arrangements and make your wishes known about all aspects of growing older? Without some serious thinking and clear instructions, it can easily happen that your care is left to the medical profession. We believe that discussing these issues in advance is good for all involved and we encourage our clients to take the lead in these vital discussions. To read Being Mortal is an excellent first step. If you would like us to send you a copy, please contact the office.

[As we go to print, the New York Times Sunday Book Review has published another exceptionally good review of Being Mortal. The date is November 9, 2014.]



I recently attended my wife’s high school reunion in Iowa. One of her class members (I’ll call him Karl), whom I have gotten to know over the years (this class of 30 members has had a lot of reunions), told me that after President Obama was elected, he feared the economy was only going to get worse and had conveyed to his broker that he wanted protection from a declining stock market. The broker recommended putting all of his money in annuities, advice which Karl followed. His decision, based on politics and questionable financial logic, raised some questions for me.

An annuity is a stream of payments made by the insurance company that sells the annuity, normally for the life of the person. Technically, Social Security benefit payments are annuities, as are company pensions. But generally, when discussing annuities we are referring to an insurance product that is purchased with a lump sum of money that guarantees to pay to the annuitant, in its most simple form, a monthly sum for the rest of his or her life. There are all kinds of variations on this theme: a 100% continuing payment to a spouse if s/he survives the annuitant; something less than a 100% continuing payment to the surviving spouse; a “ten year certain” stream of payments, so that income continues to a beneficiary even if the annuitant dies in the first 10 years. Life insurance also can be built into the policy – the options are endless. However, all of the choices come at a price, usually in the form of a reduced monthly benefit.

Although we at O&A cannot sell annuities, I periodically get put on the wrong mailing list. Shortly before my conversation with Karl, I had received an email from an annuity company assuring me that I could earn a 7% commission on annuity products from their company. If Karl had walked into my insurance office and had $300,000 to invest, my company and I could have made $21,000 in one day, and a short day at that. Annuity salesmen are not held to the fiduciary standard so are not required to disclose their sources of income. Had Karl been told the amount of the commission on what he was buying, he might have had second thoughts as to the objectivity about the investment advice he was getting. More to the point, a commission effectively reduces the amount of monthly income the annuitant will receive.

For those readers who want to understand the inner workings of the annuity and how the dollar payments work, we add this paragraph. The way in which “percentage” is used in describing annuities is different from the way we usually use the word. Suppose you are a 62 year old man who invests $100,000 in an annuity for which you will receive 5%, or $5,000 per year for the rest of your life. The 5% seems like a reasonable return, but it is not a normal 5% in that annuity payments include both principal and interest. Usually, if you get 5% on an investment, at some point in the future your original investment will be returned. Not so with annuities. Unless there is some special provision in the annuity, at the end of your life, the annuity quits paying and no money is returned.

It is important to note that charitable annuities need to be looked at in a different light. First, they are a consideration primarily for people who are charitably inclined and want to give significant money to a not-for-profit organization. They work in much the same way that other annuities work, as described above. However, with a charitable annuity, the client will likely receive less money from the annuity, but in exchange the charity also gets a benefit, and the donor/annuity purchaser will get a tax deduction on a portion of the contributed amount. This can be a useful way to simultaneously give to charity and receive a lifetime stream of payments. And there is another advantage: with charitable annuities there is normally no commission paid, so there is more money available for the charity and/or the annuitant.

We have some experience with charitable annuities, both because we have assisted clients in obtaining them and because, in my capacity as Treasurer of the Montshire Museum of Science in Norwich, VT, I have been involved in discussions on the not-for-profit side of annuities. While charitable annuities are a real benefit to both the annuitant and the not-for-profit institution, it is important to recognize that most charities will impose a minimum for the size of the annuity they accept because of the time and effort involved in setting it up.

If you have questions about this matter or think you may be a candidate for this type of investment, the planners at O&A would be happy to discuss annuities with you and, if appropriate, help you find a competitive product or a charitable option that meets your needs.



Those of you who are clients may have noticed that we made more changes than usual when rebalancing your accounts during the last few months. One modification was that for those funds which we expect to hold for the foreseeable future and which offer institutional shares, we traded in retail shares for the institutional shares of the same fund. We did this in order to reduce mutual fund expenses. Institutional shares are normally available only to very large investors, but we are allowed to aggregate our clients’ accounts for this purpose.

The other step we took was to sell some actively-managed mutual funds where we are less confident that the managers would outperform their market index, in some cases because of underperformance for an extended period, and in others because the manager we had confidence in left the fund. We then bought some very low cost index mutual funds, in the hope that we will not only reduce expenses, but also improve performance.



Several years ago the mutual fund firm of Davis Selected Advisors put together a 10 page booklet quoting legendary investors over the past 80 years. That publication has recently been updated with some valuable information. Paying attention to the thoughts conveyed below will go a long way to enhancing your savvy as an investor.

BENJAMIN GRAHAM, “Father of Value Investing,” began teaching at Columbia Business School in 1928. Warren Buffett is one of his disciples.

“Individuals who cannot master their emotions are ill-suited to profit from the investment process.”

Graham pointed out that emotions wreak havoc on an investor’s ability to think clearly in evaluating investment processes and specific investments. It is for that reason that while the average stock mutual fund returned 8.6% between 1993 and 2012, the average stock fund investor earned 4.3%, exactly one-half what the average fund earned. Most investors who manage their own portfolios will do well to read Graham.

CHRISTOPHER DAVIS is the current head of Davis Selected Advisors. The firm was founded by his grandfather in 1947.

“Despite inevitable periods of uncertainty, stocks have rewarded patient, long-term investors.”

After suffering through trying times of market losses, investors often reduce or abandon their exposure to stocks. The graph which accompanies the quotation demonstrates how consistently investors benefit from strong and often exceptionally high returns following a painful period, which is the often the time that individual investors have abandoned the stock market.

PETER LYNCH was the legendary investor and manager of the Fidelity Magellan Fund from 1977 – 1990. The fund returned 29% annually for the period.

“Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves.”

A chart shows that if investors remained in the market for the 20 years between 1992 – 2012, they made 8.2%. The stock market was open for about 7,100 days in those 20 years. However, if investors missed the 30 best days of the market, their return would be 0% for those 20 years. If they missed 90 of the best days, the return would -9.4%.

WARREN BUFFETT is Chairman of Berkshire Hathaway.

“Be fearful when others are greedy. Be greedy when others are fearful.”

This quotation would seem to present guidance for our current situation. Even though the market has more than doubled since the low point in March, 2009, there is still a good deal of fear today. The Buffett quote quite clearly suggests investors should continue to be aggressive when others are timid. Buffett also recognizes that his advice is counter-intuitive and not easy to follow.

JOHN KENNETH GALBRAITH is an economist and Harvard professor.

“The function of economic forecasting is to make astrology look respectable.”

A chart accompanies the Galbraith page that reports on an every six month survey done by the Wall Street Journal of the predictions of economists for following six months. The chart covers the 30 year period from December of 1982 through December of 2012. Out of those 61 survey periods, the economists got the direction of the market correct 22 times, or 36% of the time. They got it wrong 39 times. If economists cannot predict even the direction of the market, let alone the market’s relative strength or weakness in the following six months, there is reason to disregard what they say when it comes to making investment decisions.

Readers of this Newsletter, for the most part, do not make major investment decisions themselves, but work with O&A planners in making those judgments. But some of you pay close attention to the market and can get caught up in the uncertainties. We hope that remembering these five quotations will give you perspective.



Both David & Susan enjoyed the recent NAPFA Fee-Only Conference in Charlotte, NC, from October 21 -24. The outstanding array of speakers addressed such topics as the current state of the economy, spending guidelines for retirees, and “How to Change Things When Change is Hard.” All three of the O&A planners attended several partial day conferences in recent months on estate planning and investments, including conferences presented by mutual fund managers. In addition, Deborah volunteered at Westchester County’s Senior Law Day, answering participants’ financial planning questions.

We at O&A are presently evaluating possible alternatives to the Newsletter as a useful way to communicate with clients, primarily because the Newsletter gets published less frequently than might be ideal. We are considering publishing a periodic electronic communication somewhat more often, perhaps with only one article. We would welcome your ideas on this subject.

The O&A Holiday Party will occur on Dec. 12 and we are all looking forward to an evening with staff and spouses which includes our traditional Yankee Swap. Deborah, Susan, Kathy, Joan and David all join in wishing you the happiest of Holidays.