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Show cs DAILY HERALD Sunday, August 24, 2008 9 LOVE & MONEY HEALTH COSTS By Man Mincer Aid Rom Unlikely Sources some point ifs bound happen: Kids want to something that costs more than the money in their ' wallet And .as they get older, the gap gets bigger. In fact by the time kids hit junior high, their wants are sud-- . denly $200 videogame systems, a $100 pair of 1 trendy jeans or a $400 scooter. And as a parent no youre longer inclined At to the hand; - over ' . : . bor- - ns and young teens. Kids in By VitoJ.RacanelU pand PJEs enough to cushion the blow of tower earnings, says Morgan Stanley Euro- pean strategist Teun Draaisma, Morgan Stanley expects U.S. inflation to slide to 2.8 by the end of 2009. In past recessions, he adds, at some point inflation peaked even as profits still had a tong way, to falL 10 Europe, for example, in tiw 16 months beginning December 1974, earnings fell some t 40, but the PE went to 14 from six, and foe market rose about 50V Mr. Draaisma says.. math Back problem I hated this: A bathtub is '.. filling at x gallons per minute, but water is draining at. an (x-rate. How tong before ' the tub is filled? The math geniuses most . of whom probably run theirown investment shops on Wall Street now figured it out quickly, but I straggled. I'd always think, why not plug the drain? . The stock market now js presenting a similar problem to investors. Faster Outflow Think of the market as a tank, with earnings growth as water coming in and inflation as water going out. Inflation has a crucial in- -. verse affect on the markets ; priceeamings ratio how much a stock is selling for, divided by how much its ex- -. pected to earn in a given year. High inflation depresses pricefamings multiples, but tow inflation allows priceearn- . . . . : . . Before you push the biiy " button, however, consider that Mr. Draaisma is looking for a flatfish market, not a big rise, because the expected inflation drop won't be as large as those in previous recessions, nor is the current P'E, about 14 to. 15 times 2008 earnings estimates, as low as in past contractions. And theres a caveat. (Theres always a caveat, isnt . months. So water is entering at a slowing rate just as it's draining at an accelerated pace. there?) But inflation could subside over the. next 12 months, perhaps enough to mitigate the damage from profit declines. History suggests that falling inflation could help ex : . The strategist sees a gar-de- n variety recession. A tong and deep economic malaise could overwhelm the baton from tower inflation. Now, if we only had a stopper. For more stories, see barrons.com By TomHerman am aware of the wash-sal- e rule. Can it be avoided if you purchase a stock and hold it several months or years. Then, instead of selling and a, I you purchase additional shares;, and then, within a few days, you sell the initial shares at a . loss? As for as I can tel), this strategy would avoid the wash-sal- e rule. Is that correct? H.S, Billings, Mont . sale typically occurs when you sell a stock or some other a loss and then buy the same stock, or something "substantially identical within 30 days. .. Some people mistakenly asrule refers sume this y only to 30 days after the sale. That's wrong. It means 30 days-beor after the sale, as the Internal Revenue Service points out in Publication 17 (www.irs. secu-rity-- at fore gov). Ai No. It would still violate the wash-sa- le rule, says Steve a tax lawyer at Ropes A Gray in Washington, Rosenthal, D.C. Thus, based on what you've outlined in your question, you wouldn't be eligible to deduct the loss, he says. Here's a refresher course on how the rule works: A "wash y, . .. . . 1 If you buy the same stock within that time period, you can't deduct the loss. Instead, add the loss that was disallowed to the cost of the new stock or securities. In effect, this postpones your deduction until you sell the new stock or securities. To avoid running afoul of the rule, make sure you don't buy the same stock, or something substantially identical, within the prescribed period. Buy a different stock or a different mutual fond. There are still areas of the law that are fuzzy-su- ch as the precise definition of "substantially identical. Wash-sal- e issues can get especially tricky with the use of derivatives, which are financial instruments that derive their value from the value of an underlying stock, a basket of stocks or other assets, says Mr. Rosenthal. Whatever you do, never make any investment moves solely for tax reasons. . Send your questions to us at askdowjones.sunday03wsj.com and include your name, address and telephone number. Questions may be edited; we regret that we cannot answer every letter. human-resourc- . By Lauren Baier Kim todays troubled housing many housesare their sold, .as isT--in trendy Logan. Circle neighborhood of Washington. The house is basically a shell and is "in need total and complete renovation," according to its listing. The property is sen- ously discounted in June, a similar home in mint condition on the same block sold in just 10 days for a little over $8OO0QO. Use these tips to. help you safely navigate the process of buying a home "as is. current condition with no prom- ise of repairs by distressed homeowners tad. lenders. That means savvy buyers can pick up home bargains. But they need tq be aware of what , they are getting into. Many people assume as is ; means a home is in serious disrepair, but that's not necessarily true. A house advertised as is can be anything from near inspect the property, mint condition to a derelict. ... Pay for a professional inA homeowner may sell as spection property and is because he or she doesnt get the results in writing An have the time or money to;, inspection will help you ascermake repairs, tain the condition of the propd Lenders may list erty, and ctald help you. with as' is benegotiations.-'- ; properties cause they don't want to make " Make your offer on the home further improvements on contingent on acceptable inspechouses that they are already lostion results: And walk away if ' ing money on. Heirs may tall you cant get an inspection estate condition (read: "as ; If the seller aggressively is) inherited houses because' fights your request for the right they are in a hurry to settle an to have the property inspected, estate and dont want to spend you should view it as a warning money on a house they have no sign, advises Mr. Heller,. . financial interest in. investor. Andy Try for a discount Heller bid on a gorgeous When a home is mar-- . home in Atlanta a few weeks keted "as is, it gives the buyer the advantage. The words as ago that was being sold as is is have a negative connotation at a foreclosure auction. The and signal to house, which went to the winning bidsome buyers, Use this to your der for just under $300,000, advantage when negotiating needed only about $5000 in exwith the seller. tra work to paint foe interior First determine the market and add details like missing light value of the property you can fixtures, he says. The house was get this from your listed for more than $500000 beagent, or. by researching recent fore it went to auction, he adds. sales of comparable properties At the opposite end of the on sites like Cyberhomesxom or spectrum is a townhouse on the ZiIlow.com. Take this figure, as market for $519000 in the your starting point for determin- . real-esta- ' . . . Flat Market Slower Inflow Meanwhile, Standard ; Spoors 500 earnings were down about 22 in the second quarter,, after falling 16 in the first quarter, with most of that damage in the financials. With a global slowdown under way, the likelihood is that the S&P profits will show further quarterly drops, per; haps for the next six to 12 In 1 -- of-th- . bank-owne- . . . . Real-esta- 2 . .. never-lived-i- n' fixer-uppe- . . real-esta- . StatoftheWeek 60LD FLUSH; Gold prices staged a modest rally last week, but the traditional inflation hedge-w- as still way below precious metal-an- d Its March 18 high of 600 l--- i. AS 2007 i 0 N I,! 6 i J 2008 ing your bid for the property. .. Get estimates on the cost of needed repairs from contractors and subtract the total dollar, amount of work needed, from your bid. So if the house has a market value of $500000 and needs at least $10000 in repairs, low ball. Make. your, opening offer at no more than $489,000. And renovators ware: Budget at least 10 more.' than you expect for foe repairs. . financing and 3 Get ance. . . . ASK DOW JONES social-servic- Making a Deal for an As Is House . . - . ' ings ratios to expand, or foe .. tub. to fill, since companies lose less income to inflated costs. ; The latest figures suggest the worst: July inflation was an estimated 0.8, due to ris- -' irig food, energy, airline and apparel prices, and up 5.6 from 12 months ago, for the highest jump in 17 years. . FAMILY FINANCES . a Retreat in Inflation high-scho- . . . From . : aren't in a place mentally where they contemplate their finan BARRON'S INSIGHT . , children-kno- pre-tee- . . relationshipi Or at rower-lend- best-price- . . .. . . One-ye- ar Just to be dear, Im not talking about lending to grown off-- . spring the loans parents make to help kids, buy a .car or a house or td start a business. Even if the loan is ultimately disease-manageme- nt : .:. . . least they should. That isnt the case with ?.. . . : . adult a . . . the basics of the; . : . p. ' He wants a new videogame system, which his mom'and I refuse to buy because Santa just delivered one this past Christmas. If he wants to spend his own money this way. I'm fine with it. But hes short by cial, obligations. I still have to . Brit with each loan comes remind- my neatly Dads Loan Documents. They ; about $150. son' that hes' supposed to deSure, he could save his allowmight not hold up in a court of posit part of his allowance in law, my friend says, .but they ance for a while, but to him, the his. savings, account every are, in essence, what you have months would feel like eons. He month. Like most kids; he has tq sign.when you take out a real could tap his savings, but so many other, things on' his loan from a bank. doesnt want to. Heti like his mom and me to pay him for mind from school cliques and The paperwork details the inhomework - to neighborhood terest rate Dad charges (a flat extra chores, but his suggested friends arid the sartoon he , 5 every time), the length of pay rate (ill fold the clothes wants to record that personal the loan (each one stretches ho for $50 is laughable. A loan, though, might make finance holds no real impor- -' longer than a year), the amount tance at this age.. ' . of each payment and. the date. some sense. .: ' He obtains something he conThat doesnt mean, however, each month when that payment is due. He also provides his son that kids are incapable of undersiders Important now, but what he calls a total cost analylearns that borrowing comes standing the basics of personal finance and how loans work. sis so his boy can see exactly with strings attached, which could save him from stupid deciAnd it doesnt mean parents how much the financing really should skip such lessons.' After costs, and spells out the penal-- . sions later in life. His allowance would support a ties for nonpayment. ' all, managing money isnt just repay- -' inment plan of $13 a month, and about learning' to save and So, for instance, with .that vest Much of daily life is built $175 loan for the bike, the docu- knowing how much he loves vidaround debt, from home mortment showed that for a nine- - . eogames, the possibility of regages to credit cards to car , month loan his son owed $19.85 possession should be adequate loans. a month, that the money is due encouragement for him to pay Just as with so many other on the 15th of each month, and in a timely manner, teaching him a very valuable life skilL topics, then, the best place to that at the end of nine months learn about borrowing, is at.; he will have paid nearly $179, or My only . concern, at this home, where failure, doesnt roughly $4 in financing costs. point is buyer's remorse. Will ; If his son falls behind in his he borrow to spend, only to come with harsh,, potentially wish he hadnt, and then gripe penalties. payments, Dad effectively reposTo that end, one of my sesses the bike, meaning his about having to repay me? Then again, even that is a friends on the West Coast has : son has no access to it, until the V ' begun serving as - personal account is back in good stand- worthy lesson for him to learn banker to his son. In the past ing. That happened once with now. . year, he has gladly lent the teen- - the videogame system, - my ' ager money for such items as a friend says, but only once. He Jeff Opdyke covers personal fi- videogame system. ($250) and hated not being able to play his , nance for The Wall Street Jour- -, an upgraded BMX bike ($175). game because he forgot to pay. nal. Email: lovemoneywsj.com . , forgiven,-th- e When loan, though I am considering .it.' missing money. then So ' what?. Kids have a ready answer "Can you lend me the money?. Its a staple of every parent-chil- d relationship. You're the : bank, and across from you is a borrower who, in the best of times, doesnt even measure up to subprime unemployed, reli-- ; ant on allowances and the odd holiday and gift checks, and quick to forget to repay the debt because its only Mom and Dad. . Many parents often do write off the loan, both because they realize they're not likely to recoup the cash and because they see it as an act of love. ; But is thatthe right message to send to kids that it's OK to skip out on a debt? Or, despite their age, should they, be held to a more businesslike stan- dard? a serious medical . I haven't offered my son : . Migliori, executive vice presioccurs, your dent, Medical Affairs, company may provide more than hospital covEarly Warnings : erage. A growing number of plans He says one of the biggest cost savings' is that these case offer specially trained case managers to help patients during a managers are trained to recognize potential problems earlier. ,. major illness. Different from For example, if the transplant paprograms, which focus tient spikes a fever, the case manon patients with a chronic condiager would, know whether it's tion such as asthma or diabetes, just a cold or something serious ' services . and needs immediate attention. the are for patients with costly and Dr. Migliori says the case complex medical conditions 'managers also are crucial besuch as Cancer or an organ transr cause theyre in constant con- -' plant. These managers typi- ' tact with the patient and see cally nurses help patients with their medical records, They know whether that person is everything from avoiding duplid cated tests to finding the taking the meds and following prescriptions and other the doctors directions. If not; ' services. they could find out why and help that person before some-thin- g Monitors Complex-Cas-e more serious occurs. To--, They take our very fragday, big savings for the insurer mented health-car- e system and also mean big savings for the put some, glue on it to ensure consumer, who is paying more ; exthat a patient with a complex and more condition does not fall through penses forcare.. ' When necessary, they help the cracks, says Alwyn Passil, a spokeswoman for the Center get the patient help assistance, e for .Studying Health' System from agencies for The case Change. manager's transportation, home care tad job is to pull these pieces to- housekeeping., says John Her-at... a case manager for Aetna, gether. Intensive who also is a social worker, Patients often are automatiprograms typically are individualized and far patients with mulcally contacted by a case, man-- ; tiple physicians and drug regiager because a hospital visit mens. In 2007, about 23 of emwill bring the. situation to the. ployers offered catastrophic ; insurance company's attention. programs, up Alternatively, the patient or a from 16 in 2005, according the Jamfly member could check the National Survey of Employer-Sponsore- d insurers Web site or contact Health Plans by Merthe employees cer. ; department or the in-- : It'S not' unusual for the case surance company. ! '. It is cost effective for emmanagers to help coordinate pa-- -, tients care, - often .finding ployers to do because even in a needed equipment and prescrip- ' recession were in a war for taltions, and diagnosing depresent so we want our talent to :' sion. come back to work, says Helen ; Patients are not only over- Darling, president of the Na--. whelmed by. their personal tional Business.. Group on health challenges and fate, but .Health, the challenges of the (health carel system, says Richard Email: foromnday03wsj.com his debt You feel like an ogre doing that, but you have to have some penalty and be adamant about sticking to it. Otherwise the loan means nothing and my son doesnt learn that you have to repay your debts on .time or face unpleasant reper--: missions. i F M ii A insur- ; ' Before you make a formal offer, consider your mortgage and insurance needs. If your as is" home is a true handyman's special and is in re-ally bad condition, getting financing might be tough-esp- e-. dally in today's economy. Even today, however,. :if you have a good property, a solid job and a substantial down payment, lenders will make loans that cover the purchase and renovations of houses. If foe house will be vacant while its being renovated, youll want "course of construction" or "renovation" insurance, says Scott Spencer of the Chubb Group of Insurance Companies. That should cover you if a nosy neighbor tours your empty home and "steps on a nail," he notes. tight-cred- . . Can you handle it? . Buying an as is home is hot for everyone. Chris Moraitis, a risk analyst in the financial industry, and his wife, Holly, an elementary schoolteacher, purchased a Vic- -. torian-styl- e estate home two years ago in Hightstown, NJ. It was "beyond disrepair," he says, but it was a bargain-j- ust $300,000 when it would have sold for more than $500000 had it been in good condition. The couple is slowly renovating to restore foe historic charm of the house while adding modern amenities. Mr. Moraitis estimates they will have spent about $175000 by the ' time they are done. His advice? Make sure both partners are up for the work and are willing to give up week- 4 ends far the project M J J Source Thomsen A fciKwi Email: forunLSunday03wsj.com ; |