Apr
19
College tuition is rising faster than the inflation rate[i] and paying for higher education has become a major financial concern among many families and students. When coupled with the fact that wages remain relatively flat, and the cost of living continues to rise[ii], many families are stressed about education expenses and the possibility of incurring debt.
According to Pew Research Center, the earnings gap continues to widen between college-educated and non-educated individuals. As a result, the prevailing view is that higher education is still vital to securing a better paying job and a higher quality of life.
States are Taking Notice
The rising concern of the cost of higher education has become so prevalent that the state of New York recognized the hardship many families face putting kids through college, and instituted a free college tuition program that covers state school tuition for New York families with an annual household income of $125,000 or less.
While there are rules and regulations for those receiving assistance from the program, such as maintaining a specific GPA and remaining in New York following graduation, many families are relieved of the burden of paying for college.
Scholarships, Grants and Student Loans
The latest annual SallieMae How America Pays for College study shows that families are turning to a combination of scholarships, loans, and savings accounts to fund higher education. Fifty percent of families depend on scholarships and grants to absorb an average of 34 percent of costs.
Borrowing money through loans accounts for another 20 percent of college expenses. The terms ‘debt’ and ‘higher education’ have almost become synonymous. The total U.S. student debt stands at $1.41 trillion and the average student debt for a 2014 graduate is $33,000. (Source: newyorkfed.org)
Planning for the Future
Many factors should be taken into consideration when planning and paying for higher education. Here are three tips to keep in mind:
- Create a financial plan in advance that accounts for college tuition and living expenses. You can use tools available online to determine what tuition may look like when your children are ready to attend college. Based on that amount, establish a financial plan that will allow you to allocate savings to reach that goal.
- Consult with a financial advisor on investment options to create separate savings accounts for college funds. There are a variety of options including state-sponsored 529 plans, Coverdell Education Savings Accounts, and establishing trusts. A financial advisor can help map out the best path for you and your family.
- Keep an eye on all investment accounts, and re-evaluate your college savings plan when you get a raise or have changes in other life expenses. A change may mean that you can contribute to college funds more or less, each month. Knowing approximately how much money is in the accounts when your children enter high school and apply to college will bring peace of mind.
[ii] Consumer Price Index Detailed Report. Bureau of Labor Statistics, February 2017.
Apr
11
Apr
11
“Sometimes we need to lose the small battles in order to win the war.” – Sun Tzu, The Art of War
What a difference a year makes. This time last year, we were trying to make sense of the rollercoaster ride that markets took in the first three months of 2016. As you may recall, in the first six weeks of 2016, U.S. markets sold off dramatically. Major U.S. equity markets dropped over 10%, oil prices reached 13-year lows, and interest rates fell as bond prices strengthened in a flight to safety. Fed chair Janet Yellen calmed the markets by acknowledging negative economic indicators and backed off the promise of imminent rate hikes. Equity markets rebounded dramatically, ending the quarter with slightly positive returns despite the intra-quarter volatility.
The first quarter of 2017 started off in a similar fashion, with daily drama emanating from our nation’s capital. Despite all the noise and rhetoric, financial markets experienced one of the least volatile quarters in history. Increased consumer and business confidence played a key role in the performance of U.S. stock markets. At a sector level, U.S. equity markets were led by growth-oriented stocks in the first quarter, and large-cap stocks outperformed their small-cap brethren. The S&P 500 was up 6.07% for the quarter versus a more modest return of 2.47% for the Russell 2000 Index of small-cap stocks. The quarter also saw international stocks outperform U.S. stocks. Emerging markets’ stocks, up 11.44% for the quarter, posted the best performance of all.
The first quarter was one of quiescence in fixed income markets. Maybe the most important change in fixed income markets, during the quarter, was a continued flattening of the yield curve. The one-year U.S. Treasury opened the year at 0.89% and rose to 1.03% by quarter’s end. The long end of the curve, however, moved in the opposite direction. The 30-year U.S. Treasury fell, albeit only slightly, from 3.04% to 3.02% at the end of March.
Economists and investors are paying particular attention to inflation. The Bureau of Economic Analysis’ most recent release of the Personal Consumption Expenditure (“PCE”) showed inflation at +2.12% over the year ending February 28th. This data point that should be carefully monitored, going forward, as a trend of increasing inflation would most certainly have a negative impact on financial markets.
All of this brings us to our quote above from Sun Tzu. For investors, this quote seems directly relevant to how we view the various parts of a well-diversified portfolio. In a perfect world, our portfolios would be comprised of assets whose return streams were completely uncorrelated. In practice, this ideal is impossible; still, we still strive to come as close as possible to the goal. There will always be some part(s) of the portfolio exhibiting weak recent performance. But we must remember that we are in this for the long haul; to win the war, not just the battle. And we must constantly focus our energy and attention toward that end.
Apr
3
Managing Your Finances during Old Age
Peach Basket Parables: Cincinnati and the Longest
Game Ever
There is something special about overtime games, contests in which two teams are so evenly matched that a winner cannot be declared in regulation, which for a college basketball game is forty minutes. An extra period is needed, or deserved, one might say, by the players who have matched each other point for point. In any sport, whether it’s extra innings in baseball or overtime in football, the intensity reaches a new level for the exhausted players and nervous fans.
Overtime means another round of physical punishment for players, many of whom are already running on empty. It becomes more than a battle of basketball skill. It’s a question of stamina and mental toughness. Every possession is critical, and a single lapse in concentration could cost you the game.
Kings of the Clock
Perhaps no other NCAA program is more familiar with going the extra mile than the University of Cincinnati.
While mention of the Cincinnati Bearcats might not command the instant respect associated with the Bruins, Jayhawks, or Blue Devils, there was a period when the program was as dominant as any in the country. From 1959–1963, Cincinnati reached the NCAA Final Four five straight years, and the Bearcats appeared in the championship game three years in a row (only UCLA has done better).
Ironically, the Bearcat’s first title came the year after the graduation of their most famous player, Oscar Robertson, who went on to achieve legendary status in the NBA as one of the best all-around players of all time.
Utilizing a slow-paced, half-court game, new head coach Ed Jucker led Cincinnati to the championship in 1961, beating Ohio State in overtime. The Bearcats bested Ohio State again in 1962 (the only back-to-back championship rematch in tournament history). And in 1963, the Bearcats fell to Loyola in another overtime title game. For the record, the NCAA championship game has gone to overtime a total of only seven times in seventy-five years (as of 2013).
After that splendid stretch under Jucker, Cincinnati’s championship days were over but not the program’s propensity for forcing games into extra minutes. In terms of sheer longevity, there was one overtime game in 1981 that topped all others.
The Longest Game
It was a regular season meeting between Cincinnati and Bradley University on a cold December day in Peoria, Illinois, when an NCAA Tournament berth was still only a twinkle in both teams’ eyes. There was little drama to speak of that night—no epic showdown of big-name players, no trophies at stake, not even a conference bragging rights. It was a relatively unimportant, early-season game on the packed schedule leading up to March. At least, it started out as no big deal.
The Bearcats and Bradley Braves played a fairly routine game through the first thirty-nine minutes. But with forty-five seconds left in regulation, Cincinnati surged from four points down to tie the score at 61–61 and force a five-minute overtime.
That’s when things got really interesting. Both teams slowed the game to a crawl, attempting to score once and play keep-away to protect their lead—a common strategy in the pre-shot clock era. But the get-ahead-and-stall technique did not work for either team. Each scored only two points in overtime, and the score was tied 63–63 when the first extra period ended.
The same scenario played out again in the second overtime—just one basket for each team—leaving the score at 65–65. By the end of the third overtime, the scorekeeper must have been nodding off because not a single basket was made in that five-minute period. It’s not that the players were not trying to win. It’s that each team was all too eager to wait for the last shot, attempting buzzer-beaters to win the game instead of building a sizeable lead. As luck would have it, none of those last-second shots were going in. So the game continued.
The fourth overtime ended at 67–67 and the fifth at 71–71. Both teams scored another bucket in the sixth overtime to leave it knotted at 73-all.
It was getting very late on Monday night, and thousands of exasperated spectators were undoubtedly considering calling in sick to work the next morning. As it turned out, Bradley fans probably wished they had left earlier. By the seventh overtime, two of Cincinnati’s starting forwards had fouled out. Reserve Doug Schloemer found the ball in his hands with two seconds left, and he sank a fifteen-foot jumper from the wing to put the Bearcats up 75–73. With a final desperate shot, Bradley’s Terry Cook almost took the game to an eighth overtime, but his eighteen-footer at the buzzer bounced off the rim.
The marathon game was over after seventy-five minutes of play, nearly the length of two full regulation games. It was, and as of 2013 still is, the only seven-overtime game in NCAA Division I history. Bradley’s Donald Reese and Cincinnati’s Bobby Austin, who each played seventy-three minutes that night, share the NCAA record for minutes in a single game.
Purely for its “wow” value, the story earned a few column inches in the sports sections of major papers the next day, but the news faded quickly. The Bearcats didn’t even make the NCAA Tournament that year, and on the whole, it was a rather disappointing season. But the Cincinnati players who ground out those seven overtimes will always own a part of something special. They participated in—and won—the longest game in history.
Color Commentary
- Ed Jucker, who coached Cincinnati to its two championships, holds the record for the highest winning percentage (.917) in NCAA Tournament play. It’s a rather misleading statistic, however. Jucker coached for only five seasons. In his first three, his team went to the championship game, winning it twice. In the last two, he didn’t even make the tournament.
- One of Jucker’s most promising freshman basketball players during the 1950’s left the Bearcats after only one season—not to go to the NBA but the play professional baseball. It’s a good thing too. That player was Sandy Koufax, one of Major League Baseball’s greatest pitchers ever.
- The longest game in NBA history took place in 1951, when the Indianapolis Olympians defeated the Rochester Royals in six overtimes. Incredibly, the final score was 75–73, exactly the same as the Cincinnati-Bradley game.
Chapter-Ending Three Pointer
- Reduce your expenses as you age and potentially become less active.
- Prepare the surviving spouse for managing the money after the other’s death.
- Seek professional advice in areas that are difficult for you to decide.
© 2014 Chuck Thoele
All rights reserved. No part of this book may be used or reproduced in any manner without written permission except in the case of brief quotations embodied in critical articles or reviews.
Apr
1
Planning to Leave a Financial Legacy for Your Family
Peach Basket Parables: Duke, Christian Laetnner,
And The Shot
As much success as the Kentucky Wildcats have had over the years, they would tell you there’s one crushing defeat—now more than twenty years old—that still haunts them like an irksome ghost in the attic.
For Wildcats fans, it is a dark, deplorable moment they wish could be purged from the record books, yet they are forced to relive it year after year on various NCAA Tournament highlight shows. For basketball purists not in love with Big Blue, the moment in question is perhaps the most memorable two seconds college basketball has ever experienced.
To either group, it is known simply as The Shot.
If you’ve watched much NCAA basketball, you’ve undoubtedly seen replays or at least heard about The Shot. It is included on any credible list of great moments in college basketball. The footage has been repackaged and replayed in commercials for everything from insurance to overnight shipping, and of course, it’s part of every March Madness promotional montage.
The Shot has been covered, analyzed, and revisited by the sports media for two decades, some would say ad nauseam. So why write about it again? Because omitting it would be basketball blasphemy. Besides, as far as we know, it’s never been written about in a book about financial planning. So here we go.
A Masterpiece in Blue and White
It was March 28, 1992. Kentucky Wildcats vs. Duke Blue Devils. It was not a championship game, not even Final Four. It was the East Regional Final (the Elite Eight round of the NCAA Tournament) played in Philadelphia. Sports Illustrated, The Sporting News, USA Today, and many other media have called it the greatest college basketball game ever.
From the beginning, the stage was set for an epic thriller. It was a blockbuster matchup of two national powerhouse teams featuring star-studded rosters (Duke’s Bobby Hurley, Christian Laettner, and Grant Hill; Kentucky’s Jamal Mashburn) and two of the game’s most prominent coaches (Duke’s Mike Krzyzewski and Kentucky’s Rick Pitino). Duke, the number one seed, was the defending NCAA champion—it had beaten Kansas in 1991. Kentucky, ranked number two, was seeking a return to power after a ban from postseason play the previous two years.
Kentucky jumped out to an early lead, but Duke fought back to take a 5-point lead into halftime. The Blue Devils appeared in total control when they led by 12 points midway through the second half. That is when the Wildcats clawed their way back with a furious run. Both teams performed exceptionally well in a see-saw battle for the ages, making big shot after big shot. With the game tied 93– 93 in the final seconds of regulation, Hurley narrowly missed a buzzer-beater to win, and they were headed into overtime.
The tension only heightened in the extra period, but neither team cracked. Despite the smothering defense by both sides, the incredible plays kept coming, back and forth, to the very end. There were five lead changes in the final thirty seconds, keeping fans across the nation riveted.
- Thirty seconds left: Laettner, draped in defenders, contorts his body and makes an amazing jump shot off the glass. Duke up by two.
- Twenty seconds left: Jamal Mashburn is fouled on a drive and completes a three-point play. Kentucky up by one.
- Fourteen seconds left: Mashburn fouls out when he hacks Laettner on the shot. Laettner sinks both free throws. Duke up by one.
- Three seconds left: Kentucky’s Sean Woods lofts a running floater in the lane that ricochets in. Kentucky up by one.
Wildcats fans erupted. On any normal night, Woods’s amazing shot would have sealed the game. By the time Duke was able to call timeout, the game clock had wound down to 2.1 seconds. The Blue Devils would have to in-bound the ball on the baseline and move it all the way up the floor for a desperation heave. In other words, no chance, right? Not in two seconds plus a tick.
Inconceivable, Not Impossible
“We are going to win.” That is what Krzyzewski said to his Blue Devils as they gathered for their final timeout. Then he drew up a play that the players recognized. They had rehearsed it in practice, and they had even tried it in a game once (though it had not worked). Instead of telling them what they were going to do, he asked his players for their consensus. In doing so, he planted the confidence in their minds.
He asked Grant Hill: “Can you make a seventy-five-foot pass to the free-throw line?”
“Yes,” Hill answered.
Krzyzewski then asked Christian Laettner: “Can you catch it and get off a good shot?”
“Yes.”
When Hill took his position on the baseline, he was surprised to find that Kentucky had not put a defender on him. He could attempt the Hail Mary pass uncontested. The Wildcats opted instead to double-team Laettner, who had not missed any of his nine shots so far.
It would not have the same ring to it, but the famous play might as well be called The Pass because Hill’s was perfect. He threw it like a football, and it floated the length of the court while time stood still (the clock would not start until the inbounded ball touched a player). As millions of viewers held their breaths, Laettner fought his way to the free-throw line. Wildcat defenders lunged to intercept the pass, but the six-foot-eleven Laettner rose above them to make a clean catch. The clock started, and thus began the longest 2.1 seconds imaginable.
With his back to the basket, Laettner took a single dribble to his right, pivoted back to his left, and with 0.3 seconds to go, launched a fadeaway jumper over the outstretched arm of a scrambling defender.
Swish. Duke wins, 104 – 103.
Jaws dropped. Fans went wild. Some players embraced. Others collapsed. Tears flowed.
For Laettner, it was the perfect ending to a perfect night. He was 10-of-10 from the field and hit 10-of-10 free throws for 31 points. He was a memorable player already, but on that night, his name was permanently etched in the annals of basketball greatness. Duke went on to win its second straight national championship, the first team to repeat since UCLA in 1973. It would be Krzyzewski’s second title of four through 2013. He was en route to becoming the winningest coach in NCAA men’s basketball history.
Duke is not the only team to boast a long tradition of elite teams, a who’s who of player alumni, a famous coach, and a legion of diehard fans. Most of the schools mentioned in this book also qualify. But Duke always will have something the others wish they had. It will always have The Shot.
Color Commentary
- There is another, less glorious side to the story of Laettner’s perfect game. Kentucky fans protested that Laettner should have been ejected in the second half when, in a moment of adrenaline-fueled combativeness, he intentionally stepped on the chest of Kentucky’s downed Aminu Timberlake. Laettner received a technical foul, but had the referees reacted with a harsher punishment, The Shot might never have happened.
- In 2009, seventeen years after The Shot, Laettner appeared in a TV commercial for Vitamin Water in which he is shown reliving his moment of glory every time he throws away some trash. His neighbor witnesses this childish behavior, rolls his eyes, and hollers, “Give it a rest, Laettner!” The neighbor is former Kentucky coach Rick Pitino.
Chapter-Ending Three Pointer
- Review your estate planning documents and update as needed.
- Consult with a qualified estate planning attorney.
- Communicate your overall plan to family members to reduce unexpected surprises.
© 2014 Chuck Thoele
All rights reserved. No part of this book may be used or reproduced in any manner without written permission except in the case of brief quotations embodied in critical articles or reviews.