OCR Text |
Show DAILY E2 HERALD Sunday, May 25, 2908 DIM THE WALL STREET JOURNAL The Weekly Guide to Managing Your Money Fuhrmans Under the Weather In long-tim- The Dow Jones Wilshire U.S. Healthcare Index is down 11 eye-car- A "A INDEX HEALTHCARE first-quart- er m v io 151 J J I JAN. '08 FEB. amount of the cost on their own-a- nd some are cutting back where they can. "That's a big change over the past five years, and certainly in the last 10 years," says Kris Jenner, who manages T. Rowe Price Health Sciences Fund. As insurers and employers shift a greater share of the cost of health care onto individuals, "it's making health care much less resistant to economic forces." On top of that, the presidential election season adds another layer of uncertainty, though "the actual fundamentals are more in question than any potential policy change," Mr. Jenner adds. Feeling the Effects The shift is putting pressure on different health-car- e sectors in different ways. Hospital chains see rising levels of bad debt, as some patients can't or don't pay their portion of bills. Insurers have been struggling to meet their targets for the enrollgrowth in health-plament for a couple years now, because the overall market of n fell 15 Shareholder Showdown: Activist investors may clash with Exxon Mobil management at the company's annual meeting Wednesday. 2009, as it previously predicted. last week, as the auto maker said it is "extremely unlikely" to return to profitability in $8.50 FORD (F) 1 7.50 Street Journal Sunday writers regularly contribute to the Journals 7.00 Tu. e podcast I&ten at WSJimPodcasts MON. Flight Fight: A court hearing is planned this week on a Mesa Air Lines motion to prevent Delta Air Lines from canceling a connection contract. Cancellation could land Mesa in bankruptcy. Pain: The drop in the S&PCase-Shille- r index of home prices is due Tuesday; the fourth-quartFigure was down 8.9 from a year earlier. e first-quart- TUE. WED. THU. FRI. 'Source: Thomson Reuters Bean Bear Stearns shareholders vote Thursday on the acquisition by J.P. Morgan Chase, and the deal is expected to close days later. J 1 6.50 . SLM, or Sal-h- e Mae, said it will continue to make federally guaranteed student loans, ending fears it might join the recent exodus from the market. LAST WEEK Energy Deal: Halliburton s proposed to buy U.K. firm Expro International Group for $3.39 billion, bid trumping an agreed-upo- n from a private-equit- y group. Cutting Back: AMR's American Airlines will cut capacity by as much as 12 and begin charging some passengers $15 to check a bag. Vioxx Settlement: Merck agreed to pay $58 million to settle claims by states of de- ceptive advertising for its Vioxx painkiller. oilfield-service- MrasmEErjoraETiiin Paul D.Bell Vice Praident, Partner Buiinesm (212)659-121- Lawrence Rout, Senior Editor Lariy.Roulwsj.com 2 ' PBul.Belldowjones.com Mark Pope David Crook, Editor David.Crookawsj.com Director, The Journal Report t$ Karen Damato, Special Project Karen. Damato(a waj.com (212)597-586- Mark Tyner, Art Director Mark.Tyner(g wq.com Steven A. Townsley TlUMKiNt: Director qfSale (212)597-573- EMAIL. 3 Steven.Townaleylg dowjonM.com CoRPOMTf Newt Editor 8 Mak.Pope(ftdow)onei.cora (809)520-400- 0 WMMY03WU.OIM 410 Rom I North SoiTH BwiwwtiK. XJ. 08852 HMMJUKTIM For a Spk iai Jorum Si OrrauCAU: 200 Liberty Street New York. N.Y. 10281 Aaofwewta'sEmoNrj VYSJ.CQ ' fuOil Gusher: Crude-o- il tures rose 4.9 last week, closing Friday at over $132 a barrel, which increased inflation worries and put pressure on stock prices. Student Loans: AVAU3H ON OUR FREE W8 SITE : MAY : Do , Jones Indexes jobs with health benefits has stagnated. WellPoint, which has lowered its 2008 profit forecast already twice this year, has said more small businesses facing hard times are dropping or cutting back coverage. It has also seen membership numbers go down within existing employer more accounts suggesting workers or their dependents can't afford the premiums the employers require them to pay. Employers squeezed by health-car- e costs are turning to or options such as providing plans, but those aren't as profitable as traditional coverage for health-plaproviders. "It puts a real squeeze on their business model," says William Rutherford of Rutherford in Investment Management Portland, Ore., who says he has shied away from the managed-car- e sector. Companies with consumer-healt- h franchises not affected by health insurance, such as aesthetic lasers and surgery, are more directly vulnera g n : eyesight-improveme- For Wall Home-Pric- Home Loans ble to the economy. Allergan, the maker of Botox, for instance, is down 16 since year end." Likewise, the higher copays people are paying for brand-nam- e drugs are exacerbating an already big problem for big pharmaceutical makers: fierce generic competition. In the past two recessions, drug makers were riding high on a wave of blockbuster drugs. Now, many face patent expirations and have come up dry in the search for new and innovative drugs. Even companies with established drug portfolios face higher risks than before. After several drug scares and recalls, such as that of Merck's painkiller Vioxx, drug regulators have been responding more aggressively to safety concerns. "It adds a whole new element of uncertainty," says Rob Junkin, who manages Evergreen Health Care Fund. Opportunities Exist Investors say they still see plenty of defensive plays in certain niches and, after so many price plunges, a lot of value, too. Betting on Biotech Big biotech looks more promising than big pharma, says David Smith, chief investment officer for Rockland Trust's Investment Management Group in Massachusetts. Genentech (DNA) has a broad portfolio of n drugs with little risk and more in development, he says. Biotech, in fact, is a bright world, spot in the health-car- e with a Dow Jones Wilshire biotech index up a slight 0.2 since year end. Mr. Jenner also has been investing big in the area; stocks he likes include Alexion Pharmaceuticals (ALXN) and Pharmaceutical (BMRN). patent-expiratio- Bio-Mar- in If you'reor aa buyer withhome a tarfirst-tim- e nished credit rating, check out the Federal Housing Administration's home mortgage program. The FHA insures mortgages issued by private lenders. A few years ago, in the days of loans, borrow- ers often TIP OF avoided FHA THE WEEK loans because they require a minimum down payment of 3 of the purchase price. But with most lenders now demanding a 15 to 20 down payment an impossibly high expense for most first-tim- e buyers FHA loans have become far more attractive. Further, it's possible to qualify for an FHA loan despite a poor credit rating linked to previous late loan payments, home foreclosure or even a bankruptcy filing. While the FHA requires all borrowers to meet minimum standards of financial reliability, it aims to help home buyers whom private lenders avoid. FHA mortgages do carry added charges for the FHA's insurance. Currently, borrowers pay an upfront fee of 1.5 of the mortgage amount plus an annual fee of 0.5. As of July 14, those charges will increase for many borrowers, to as much as 2.25 upfront and 0.55 a year. Rates on FHA loans can vary from lender to lender and there are dollar limits. For the maximum FHA loan amount in your geographic area, go to www.hud.gov and look for "FHA Mortgage Limits" in the right-hancolumn. d By Emily Green Email: forum.sunday03(3wsj.com Refresh Your Retirement Plans Now ROUGH ROAD: Ford Motor shares kets are closed Monday for Memorial Day. Bye Bye, First-Tim- er ENCORE IN THE MARKET weekday "Your Money Matters' J APRIL MARCH Source: THIS WEEK mar- so far this slide in the Dow Jones Industrial Average. year, exceeding the 5.9 INVESTOR'S CALENDAR personal-financ- For instance, Junkin likes both Allergan (AGN) and Barr Pharmaceuticals (BRL) after their big share price declines. Besides Botox, Allergan e has a solid and promising business, he says. Though sales and Barr's earnings were below expectations, it remains to take advantage of growing generic drug use and recently won approval to market a version of Yasmin, a popular oral contraceptive. Mr. Rutherford says he's putting more money in companies aimed at containing costs, such as pharmacy benefit manager Express Scripts (ESRX). He says medical devices are also a safer bet, as they face fewer regulatory challenges than drugs. A common favorite among investors is Hologic (HOLX), which develops and supplies and digital mammography other advanced-imagin- g systems for women's health needs. Inc. All Rights Reserved, Mr. past economic investors looking for from falling share prices could always run to health-car- e stocks. This year, though, that classic safe haven appears worse than the storm. Recession or not, people get sick and use prescription drugs, medical devices and plenty of other medical services. That's the driving logic behind the health-car- e industry's usual resistance to the economy's twists and turns. But so far in 2008, healthcare stocks have taken an even bigger beating than most. The Dow Jones Wilshire U.S. Healthcare Index is down 11 since year end. By contrast, the Dow Jones Industrial Average is down 5.9, after losing 3.9 last week, and the Nasdaq Composite Index is down 7.8, after tumbling 3.3 last week. Some of the biggest managed-care and pharmaceutical companies have led the plunge. Humana, one of last year's top performing health insurers, is down 35 this year, while WellPoint and Health Net have dropped 39 and 36, respectively. Among drug makers, Merck has fallen 33, while generics maker Barr Pharmaceuticals is down 19. What happened? Many companies have been simply overwhelmed by their own problems, such as lackluster drug pipelines, regulatory snafus or in pricing miscalculations health-car- e plans. e But health care investors say a more fundamental change is also taking place: As the cost of health care continues to soar, consumers are having to shoulder an increasing Short Week: Financial 6 Company, Refuge No Refuge at All Health- - Stock By Vanessa 2008 Dow Jones WSJ.comSunday twiup-no- investors portfolio is down double digexits? But would-b- e reperts say any tiree who has 70 or more in stocks should take a serious look at putting more bond investments in the nearing the n stock-mark- turmoil should sound an alarm: Give your retirement accounts a thorough checkup sooner rather than later. Most investors have a tendency toward inertia with their savings; they make an initial set of deci sions when signing up for a retirement plan such as a 40100 and then forget By Tom about it. Lauricella While that can be a good thing few quality indecisions vestment are made during periods of extreme fear or greed the downside is that a can end up with a portfolio more appropriate for someone half that age. If you are within several years of tapping your nest egg, a primary focus should be preserving savings. The reason is simple: If the value of investments falls your sharply, there's less time to make up ground. Start your checkup in these three areas: . Company stock. A criti- cal lesson from this year's market woes is the danger of having too much company stock in retirement accounts. The prime example was the collapse of investment bank Bear Stearns, where the share price plunged to about $10 from over $80 in just a matter of weeks. About 30 of Bear Stearns stock was owned by employees. (The company was on the brink of bankruptcy when it agreed to be taken over by J.P. Morgan Chase.) And it wasn't that long ago that many employees at Enron and WorldCom had much of their retirement aSunday i mix. ";' t savings wiped out when those companies imploded. Unfortunately, many people approaching retirement still have excessive company stock in their nest eggs, according to Financial Engines, a Palo Alto, Calif., company that provides services to 40100 plans. In a recent study of more than one million 401(k) accounts, Financial Engines found that in cases where company stock was offered as part of the plan, those shares made up more than 20 of the portfolio for 43 of the participants over age 60. More alarming, one in four of those age 60 or older had more than 50 of their money in company stock. To minimize risk, Financial Engines keeps company stock to less than 10 of a portfolio for most accounts. Asset allocation. There's also the broader issue of having an appropriate balance between stocks, which have the potential for big gains but also big losses, and bonds, which don't move as much in price but offer little growth potential. Investment firms have varied views on the right balance, as evidenced by the different allocations they use in their "target date" mutual funds. i j T. Rowe Price Group believes that for someone age 60, about 63 of a portfolio should be in stocks; for someone age 65, about 55 in stocks is the right level. The reason: Longer life spans mean a greater need for the growth potential of stocks which can keep your principal growing despite annual withdrawals for living expenses. Otherwise, it may be tough "to keep pace with the cost of living," says Edmund Notzon, chairman of the firm's asset allocation committee. By contrast, Wells Fargo Advantage Funds pegs the appropriate range of stocks for someone five years from retirement at 30 to and 25 to 35 for a old. The company's argument is that a high percentage of stocks leaves investors vulnerable to tapping their accounts during a down market, and as a result, locking in losses they recover. Timing is important," says Gierk, who oversees Wells Fargo's retirement products. Which is correct? The answer could depend on your ability to cushion losses in the stock market with other guaranteed income, such as a pension. For others it may be a comfort level: Can you sleep at night knowing your 45, rw'l Lr Starting date. It's among the toughest questions in retirement planning: When do I begin tapping my nest egg? As eager as you might be to start retirement, few employees realize just how big a favor they can do themselves by postponing the day they leave the office. Financial Engines offers the example of a man earning $80,000 a year with $400,000 in a 401(k) plan. If he were to retire at age 62 and use his 40100 balance to buy an annuity paying him income for life, he could expect to collect $26,100 a year. At age 65, the expected annual income increases to $34,300 and at age 67, the income would be $41,400. Some of that extra income is simply the result of having more time to contribute money to the accoimt More important is the combination of not withdrawing money and the potential for compound earnings during those extra years. Plus, working longer means that your savings won't have to last for as in turn, many years-wh- ich, means it's possible to withdraw more money every year and limit the risk of draining your savings. also Working longer boosts your Social Security checks. Says Christopher Jones, chief investment officer at Financial Engines: "A lot of people fail to appreciate just how significant delaying retirement by even a couple of years can be in terms of their retirement income." Email: encorewJ.com |