Danvers, MA (October 27,2011) It is no secret that healthcare expenses will have a compelling impact on the quality of life of all Baby Boomers in retirement, and many believe that costs will eventually swell beyond their control.  “The assumption on expenses is accurate; however, a safe and secure investment now can create a reservoir that can be tapped when unforeseen healthcare expenses arise down the road,” advises Ron Mastrogiovanni, CEO of HealthView Services and one of the founders of FundQuest.

Unlike traditional mutual funds, a new, innovative investment vehicle called absolute return funds provide investors with steady, stable returns in both bull and bear markets.  Given the current instability in global markets, there is ostensibly a demand for a mutual fund designed to limit losses while achieving an intended return over inflation. Established in late 2008, absolute return funds have been structured so that fund managers can strategically migrate from one asset class to another.

Mastrogiovanni offers this example:  In a down market, a manager of a conventional equity growth fund must consistently comply with a prospectus that requires the fund manager to maintain a portfolio of equity growth securities. The absolute return fund managers can, in a strategy similar to what hedge fund managers employ, move into any asset class, including domestic fixed income, emerging markets, REITS, and short term commercial paper, all designed to protect principal while achieving a targeted rate of return.

Absolute return funds are now being offered to investors by Eaton Vance, J. P. Morgan Chase, and Putnam Investments, with Putnam currently leading the way. Putnam CEO, Bob Reynolds, has said that: “Putnam has taken an investment concept that has worked for institutional and high net worth investors, and brought it to the retail investor.”  The fund company currently offers four absolute return fund choices with the clear benefit that they do not target performance based on traditional investment benchmarks, such as the S&P 500. Instead, the objective is to target a return in excess of Treasury bills, with a more conservative product targeting a 1% return over Treasury bills and a more aggressive fund targeting a return of 7% over Treasury bills. Accordingly, the absolute return funds could actually be up in a down market year.

“Absolute return funds are not only attractive core products for Boomers to hold in their portfolios during this volatile market, but viable long-term options to prepare for inevitable out-of-pocket healthcare expenses,” says Mastrogiovanni. Ultimately, an absolute return strategy featuring a low correlation to equity and limited downside volatility leads to a consistent return that is critically important to pre-retirees and retirees alike. This innovative approach may provide Boomers with some peace of mind in regards to addressing rising healthcare costs in retirement.

About HealthView Services and Ron Mastrogiovanni

HealthView Services is a software firm specializing in financial planning, retirement planning, retirement income management, and health risk assessment tools and solutions. It is one of the only firms in the country that builds solutions for both the healthcare and financial services industries to address out-of-pocket health care costs that individuals will face during retirement.  HealthView’s CEO Ron Mastrogiovanni has over 25 years of experience in management consulting, financial services, and the computer technology industries. He is a co-founder of FundQuest, a well-regarded provider of wealth management solutions for financial institutions, including banks, insurance companies and investment product firms, where his team managed over $12 billion in assets.

Debt ceiling/budget reduction negotiations ended abruptly on Friday. Unless a deal is reached on Sunday, global markets are likely to experience a significant sell off. Rating agencies expected an increase in the debt ceiling and a reduction in US spending in order for the US to maintain its current rating level. It does appear that the US will increase the debt ceiling for some period of time. In addition,  our political leaders will likely stress that serious discussions on spending cuts will begin immediately which in turn will hold off rating agencies from down grading both the US and a number of states. The specifics of a US debt ceiling deal will drive the market action entering this upcoming week.

Markets performed well last week primarily driven by corporate earnings with major indexes up between 1.6% and 2.5%.  The majority of the firms beat expectations with the exception of a number of banks and Caterpillar which fell short of its forecast because of eroding margins. Caterpillar did beat top line revenue projections by 8%.

This upcoming week is loaded with news including a debt ceiling deal, the Case-Shiller home price index, new home sales, USDA food prices outlook, jobless claims as well as earnings from Texas Instruments, Ford, Amazon, UBS, Aetna, ExxonMobil, Starbucks, and Merck among others.

At this point, I do not recommend taking any immediate action based on the news out of Washington. As I mentioned last week, a quick reaction to the news will likely result in selling low and buying high.

I’ve been asked on numerous occasions to publish a basic  low expense growth ETF portfolio. Well, here it is but note that I do not endorse a long term buy and hold strategy. Therefore, the following portfolio does not replace the advice and ongoing management provided by a qualified financial advisor.

Symbol                 Security                                                                                                                Allocation

Money market fund                                                                                                                               10

CSJ                         iShares 1 to 3 year Corporate Bond Fund                                                            15

DIA                         SPDR Dow Jones Industrial Average                                                                    20

IJH                          iShares S&P Midcap                                                                                               5

RFG                        Rydex 400 Midcap Growth                                                                                    10

SPY                         SPDR S&P 500                                                                                                     20

VB                          Vanguard Small Caps                                                                                              5

VBK                        Vanguard Small cap Growth                                                                                   5

XLI                          SPDR Industrials                                                                                                    5

GLD                        SPDR Gold Trust                                                                                                    5

This particular growth portfolio consists of 25% in fixed income and cash, 5% in gold, and 70% in domestic equity. I have not included a specific international position at this point in time because the 45% allocation in large caps currently address a reasonable exposure to both established and emerging international markets.

Have a good week.

Ron

I f we don’t see eye to eye, there’s something we can do
I’d start walking your way
You’d start walking mine
We’d meet in the middle
‘Neath that old Georgia pine

We’d gain a lot of ground
‘Cause we’d both give a little
And there ain’t no road to long
When we meet in the middle
Diamond Rio: “Meet me in the middle”

Someone needs to send the lyrics to this popular Diamond Rio hit to our leaders in Washington. The Dow lost 1.4% and the Russell 2000 (small caps) lost more than 2.7% this past week. And note that markets were not really focused on negotiations in Washington or the potentially drastic implications related to not raising the debt limit.

If congressional leaders don’t “come together” soon, markets will be moving into unchartered territory. The 78 million Baby Boomers preparing to enter retirement, and their approximately $15 trillion in investible assets, may become vulnerable to a quick drop in net asset value at a point in time where full recovery may be difficult. As a Boomer, I will be focused on Washington this week, but as of today (Sunday), it is unlikely that I will take any preemptive measures entering this upcoming week.

Earnings season will be in full swing, which will likely lead to increased volume and volatility. We will hear from Apple, IBM, Yahoo, high flier Chipotle, Halliburton, Bank of America, Wells Fargo, AT&T, Verizon, GE and many more. Historically, market drivers during earnings season would be past performance and more importantly, forecasts for the remainder of the year. This quarter, earnings will take a back seat to US debt limit negotiations and Euro zone debt issues in Greece, Spain, Portugal and Italy.

On the earnings front, Apple is expected to exceed expectations and Bank of America is likely to disappoint. The bank is currently selling at around 80% of book value which would typically be considered a strong buy signal, but it is unlikely that the bank will make a significant move to the upside in the near future.

If you are looking for a short term safe haven until the US debt limit issue is resolved, the answer is cash equivalents. I do believe there will be a resolution, and therefore, I will not be liquidating equity positions. Keep in mind that selling out of equities on Monday and then attempting to quickly re-purchase equity positions a couple of days later will likely lead to selling low and buying high.

I do not expect to be active this week, but I will be watching the news closely. If both sides of the congressional isle and the White House decide to “come together” and “meet in the middle,” and earnings are positive, we could easily erase the negative number posted this past week.

There has been many comments & quotes about what the CBO reported on the new Health Care Act especially on what will and may happen.

Here is the 35 page CBO Report from March 2010. This report does comment on how the Health Care Bill will affect Premiums, Medicare, Health Care, and Employment

CBO On Health Care Legislation

Markets posted another strong showing last week with the Dow now up over 9.3% year to date. Although, markets ended on a sour note Friday after a horrible weekly jobs report. Analysts expected up to 125,000 new jobs but only 18,000 new jobs were actually created and as a result, the Dow lost 0.49% on Friday.

I took advantage of dips in the market by increasing exposure to small caps (VBK), Industrials (XLI) and as expected, I started a position in the consumer discretionary sector (FXD). I am currently considering boosting yield by adding a new position in telecommunications (VOX or IYZ). As noted in previous updates, yield contributes approximately 40% to annual performance generated by equity markets.

Globally, I am concentrated in the US and in emerging markets which takes into account my long term view of the market. From a sector perspective, I am overweight in industrials, health care, technology and the consumer discretionary sectors. I am underweight in fixed income and cash.

The focus as we enter earnings season will be company forecasts for the remainder of the year, debt issues in Spain and Italy, domestic jobs growth and the US debt ceiling. Considering the impact on global markets over the Greek economy, can you imagine the global implications associated with the US defaulting on its debt? The clock is ticking and global markets will not wait much longer before reacting to the inaction of the US Government. Also, the economies of Spain and Italy are significantly larger than Greece and Italy is actually too large to bail out. These issues along with job creation in the US may trump corporate earning over the next couple of weeks.

Long term I am cautiously optimistic mainly because equities are very inexpensive, balance sheets are in excellent shape and therefore, I would not be surprised to see the Dow end the year up over 15%. My forecast is based on the underlying assumption that the US and Europe will effectively manage current debt related issues.

As I have mentioned in numerous Weekly Updates, cash is considered an important asset class but, you need to be aware of a small potential risk associated with money market funds today. Many money market funds currently hold considerable positions in European bank paper. These particular banks are invested in European countries including Portugal, Spain, Italy and Greece and they generate a yield of approximately .01%. Safer US Government or Muni money market funds also generate approximately .01%. Therefore, given the additional risk associated with general money market funds, my preference is to invest in US Government funds that provide equal return at a slightly lower risk level. I am not suggesting that money market funds invested in Europe may break the dollar but I do prefer the safer alternative.

Recent surveys of people planning for retirement have consistently revealed their concern for healthcare expenses in retirement and the need for financial planning that specifically addresses that concern. Many people now see that healthcare might be their largest single expense in retirement. These people are in the market for professional guidance in understanding how much healthcare might cost in retirement and exploring different investment options they could implement now to ensure an income to cover those expenses year after year as long as they live.

For the Full Report

Marketing Annuities as Investments to Finance Retirement Healthcare Expenses