This interesting slide that I just received from J.P. Morgan was a good reminder of the role that market volatility plays in achieving long term investment goals. The red dot shows the largest decline in any year and the gray bar where the year ended. The average inter year decline since 1980 was 13.8%. The most amazing one to me is 1987 where it was down 34% and ended up 2% for the year. The point is that Markets go through gyrations as a normal course and the only way to have a successful long term investment strategy is to stay invested for the long term and ignore fluctuations.

Margin balances, the money that investors borrow to buy securities, had reached $652 billion by the end of August. That's roughly one year after the first time they exceeded $600 billion. Except in very rare circumstances, I can't see any reason for investors to use borrowed money to buy stocks. This not only applies to stocks but to all sorts of financial instruments, particularly variable insurance products and illiquid holdings such as limited partnerships.

If the markets go down enough, the securities you own on borrowed money can be sold to meet margin calls. You don't get to choose which securities in your account are sold, you don't get extended time to raise the additional cash, and you lose more money than you have on deposit with a margin call.

I don't like seeing this trend of increasing margin balances. Many brokerage firms make it a practice to open accounts as margin accounts. They tell investors that if they need money, they can draw against this account very easily by increasing their margin balances and they don't have to sell any securities or pay the taxes on them. This is all fine and dandy until something happens. If we have a crisis and you're forced to liquidate securities to cover a margin call, it can be a very expensive experience.

Health care costs in retirement have so many moving parts it can be difficult to figure out how to get a plan that will provide the coverage you need. The new Vanguard/Mercer healthcare cost model shows that a 65 year old woman has an annual median cost of $5200 per year for healthcare expenses. However, this can vary from $3000-$26,200 per year, depending on a variety of factors.

Getting this right is very important. For example, do you need long-term care coverage? About 50% of people will never have any need to spend money for long-term care. Some of those who do, will need it for a very short period of time and some for an extensive period of time.  Some are able to pay for it out-of-pocket and some people have very little resources and will have to rely on Medicaid. How do you plan for this?

Some of the factors that need to be considered are
•    age at retirement
•    geography
•    Medicare surcharges based on your income
•    employer benefits
•    marital status
•    family history
•    health and prescription drug needs 
•    individual healthcare costs